Foreign exchange losses and the Securities and Exchange Commission’s decision to deny the merger proposal of the Dangote Group, which comprises Dangote Sugar Refinery and NASCON Allied Industries, have been blamed for the recent decline in the stock prices of the company.
The persistent pressures on inflation and volatility in the foreign exchange market, according to analysts, have made these problems worse. The cost of importing raw materials has gone up due to the naira’s depreciation, further compressing profit margins.
Dangote Sugar Refinery’s shares fell 18.67% between May and August 2024, from N45.00 to N36.60, as a result of supply chain problems and unstable sugar prices that negatively impacted the company’s financial performance.
The stock price of NASCON Allied Industries declined over that time, going from N37.00 to N32.45, a 12.57 percent decrease. Nonetheless, Dangote Cement’s share price increased by 41% between May and August 2024, starting at N419 in May and reaching N591 in early August.
It was announced in an April statement that the proposed merger with Dangote Sugar Refinery Plc and Dangote Rice Limited has been suspended. The announcement was signed by Adedayo Samuel, the corporate secretary of NASCON.
He continued by saying that this decision, which was first made public on August 30, 2023, will not move forward in light of the Securities and Exchange Commission’s remarks and suggestions, which raised issues with Dangote Rice Limited’s existing non-operational condition.
NASCON thanked its stakeholders for their ongoing assistance.
“NASCON Allied Industries Plc. (“NASCON”) at this moment notifies the Nigerian Exchange Limited and the investing public that, further to its announcement of August 30, 2023, in respect of the proposed merger of Dangote Sugar Refinery Plc, NASCON and Dangote Rice Limited, a decision has been taken to suspend the said merger at this time.
“The suspension is due to the comments and recommendation of the Securities and Exchange Commission centred around the current non-operational status of Dangote Rice Limited. NASCON wishes to express its appreciation to all its stakeholders and will keep the public informed of any developments as they arise.”
While the Dangote Group’s businesses have experienced decreases, they are aggressively exploring development possibilities and resilience, according to Bisi Bakare, the leader of a shareholders’ advocacy group.
“I do not think the refinery is playing any role in it. It has to do with similar challenges facing the manufacturing sector.
“One of the challenges is the effect of foreign exchange losses, which arose as a result of the continuous depreciation of the naira.
“Also, inflationary pressures, which arose as a result of a continuous increase in inflation, led to a high interest rate on borrowing, which has an untold effect on finance costs and bottom line. Also, the high cost of raw materials imported and the high cost of energy. All these factors continue to impact on manufacturing sector of which Dangote Cement isn’t an exception,” she said.
The fall was ascribed by financial expert Ariyo Olugbosun, to the Securities and Exchange Commission rejecting a merger proposal combining Dangote Sugar, NASCON, and Dangote Rice Limited.
Olugbosun contended that the stock price swings were made worse by the regulatory decision, which caused a decline in investor interest.
“While FX losses are a concern, the SEC’s decision on the merger has been a major driver behind the fluctuating stock prices. The SEC decision is best known to them, but I think it would have helped Dangote make more profit,” he explained.
In a conversation with The PUNCH, Boniface Okezie, the president of the Progressives Shareholders Association of Nigeria, addressed concerns regarding the price of Dangote Cement by emphasising that market forces were mostly responsible for the fluctuations.
He also added that this viewpoint highlights the larger trends impacting the industry as a whole, not just specific players.
“The trend is not unique to Dangote Cement alone. If you look at other companies in the cement industry, like BUA Cement and Lafarge, you’ll see similar patterns. Despite the challenges, Dangote Cement remains higher in value compared to its peers, with BUA Cement following closely.”
In reference to Dangote’s highly anticipated refinery project, Boniface pointed out that as the company is not yet publicly traded, it is impossible to evaluate its performance at this time. He emphasised the urgency of acting quickly to stop additional harm from being done to the oil and gas sector.
“The refinery isn’t fully operational, and until it is, we can’t gauge its market strength,” Boniface explained. They added that ongoing issues with the Nigerian National Petroleum Corporation (NNPC) and other regulatory bodies are hampering progress. “Nigeria stands to lose if the regulatory relationships aren’t quickly resolved.”
The possible effects on foreign investment, according to Boniface, are also a cause for concern. He issued a warning that unresolved matters would discourage investors from doing business with Nigeria. Many investors could be reluctant to conduct business in this area.
“We urge him not to lose faith in the Nigerian economy, calling for a speedy resolution to preserve Nigeria’s appeal to foreign investors.
“Even though it might not be an easy path, his large investments will pay off after the obstacles are overcome. He won’t see the benefits right now because it’s a long-term investment, but he will eventually,” Boniface continued.
