Dangote’s $5bn listing signals new era for Africa’s markets

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JIMMY MOYAHA: Several weeks ago we floated the idea that the business known as Dangote Petroleum was potentially looking at listing.

At the time we were looking at a listing on the London Stock Exchange; we’ve since received some new intel that suggests that Nigeria’s stock exchange could be the destination for the primary listing, with markets like Kenya and South Africa potentially in the running for a secondary listing or even just benefitting from the primary listing.

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We are going to try to make sense of this as it stands at the moment, and to try to figure out what an IPO [initial public offering] of this size could mean for the African continent.

I’m joined on the line by the chair of the South African Oil and Gas Alliance’s Gas Economy Leadership Group, Craig Morkel, to look at this and see what we make of it. Craig, lovely having you on the show, as always. Thanks so much for taking the time.

This could be the largest IPO that the African continent has seen. Early estimates on valuation put the Dangote Petroleum business at around $40 billion in valuation, based on a private stake that was dealt with a couple of weeks ago.

But we know that at least $5 billion could be coming to market via this IPO. Tell us about the significance of this IPO.

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CRAIG MORKEL: Jimmy, thank you so much – and to your listeners. This is a lot bigger than merely an IPO. We shouldn’t look at this as investor confidence in only Dangote Industries.

It is a potential vote of confidence in Africa and its industrialisation through energy infrastructure such as a refinery.

If they are successful in their IPO, it should be encouraged because then we will have an opportunity to attract not only foreign direct investment, but continental direct investment.

And by that I mean pension funds such as those in South Africa. Hopefully then Mr Dangote Dangote [Aliko Dangote, founder and CEO of the Dangote Group] would consider listing on the Johannesburg Stock Exchange as well.

But it is significant in that an investment of that scale would be globally significant, and it would help us to deal with supply-chain disruptions that could be caused by global pandemics, by regional conflicts such as the Strait of Hormuz [closure].

And the closer supply is to demand, the less the risk and the lower the cost of transport in particular.

So this is a particularly interesting asset class. It is not simply a refinery. It is investable infrastructure that Africa desperately needs and it should therefore be encouraged.

It would demonstrate confidence in Africa’s industrial capability at a scale that we’ve never seen before.

And should they go to Kenya and build a refinery there, it would certainly help with security of supply in not only East Africa but every interconnecting piece of infrastructure, including road and rail from Kenya into the hinterland – even southward towards South Africa.

JIMMY MOYAHA: Craig, you mentioned something quite important. You used the term ‘investable infrastructure’, and we know that South Africa has been on its own investment drives around infrastructure development, with the government committing at least a trillion rand towards infrastructure development.

But I want to look at that in a bit more detail. ‘Investable infrastructure’ means infrastructure that would have some investment case for it. What does that mean for the African continent in terms of significance?

Because we know that the continent is in dire need of infrastructure investmen; we have seen it in certain parts, in certain economies, but this kind of IPO represents the potential for a blueprint on what investable infrastructure could look like – as you allude to.

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CRAIG MORKEL: Yes, Jimmy, we’re talking about a going concern here.

We’re not talking about a new kid on the block – and that counts for something. A going concern that has generated revenue and has the potential to generate further revenue is very attractive, whether it’s listed or not.

You mentioned earlier the 6% acquisition by an investor does then signify that a valuation is at least attached to that kind of asset that’s already a going concern. That bodes well. That bodes well.

But I need to declare one concern. We haven’t seen the books, because it’s a private company.

We will certainly with an IPO see the books and any investor – institutional or otherwise – will, I’m sure, conduct a thorough due diligence before they commit.

And so I encourage Dangote Group to please just get the paperwork right, so that it could then please pass those kinds of due diligence requirements of any investor. I don’t think Mr Dangote is ignorant of that. He has been able to attract investors before, and should know this very clearly.

So I think it’s a going concern that could expand. And a greenfield project in Kenya would not be as scary as one might think, because they have existing demand there.

And so you could simply do a price comparison: Can a refinery in Kenya deliver product cheaper than the imported cost?

So we’re not talking here about plastic goods and clothing that could be imported from the cheapest manufacturer in the world.

We are talking about something that can be a raw material in Africa, can become an intermediate or intermediary product, and can then also become a final product.

We sometimes forget how much of our lives are intertwined with the oil and gas value chain, given that so many petrochemical products used in the most basic of things rely on oil and/or gas.

This helps us to make that transition from dirtier and unhealthier options such as coal and biomass, where we’re sitting with 600 million Africans without clean energy. By that I mean cleaner than dung.

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This changes that map completely, because now people could have access to energy in a more dignified way, in a more consistent way.

And hopefully the 1% contribution of Africa to global warming through its greenhouse gas emissions will not increase too much.

We still have room. We have not really been responsible for global warming, but we need to grow. And so growing our emissions from 1% of global to perhaps 3% of global should not raise any eyebrows anywhere.

I mention that in particular because some institutional investors have a challenge [with] investing in any form of fossil fuel, and I would urge them to reconsider that position – especially while we are still in a transition – that they should consider what a reduction in greenhouse gas emissions would mean relative to the status quo.

So as long as there is a reduction in greenhouse gas emissions towards a country’s nationally determined commitment – it might be net zero by 2050, others may have it by 2060 – but as long as there is a consistent reduction over time, we can survive the transition.

But if we make any sudden changes, any quick moves that we are not prepared for, then we could experience what has happened elsewhere in the world where the transition has perhaps happened too fast, and they have suffered the consequences – including blackouts, including market price spikes, electricity market, gas market spikes – because of an overdependence on intermittent technologies without first putting in place the protective measures that you need to avoid the intermittency challenge and its impact on grid stability, and therefore energy security.

JIMMY MOYAHA: The story of energy security and, more importantly, of investable infrastructure on the African continent. The Dangote Petroleum Refinery and Petrochemicals business intending to list on the Nigerian Stock Exchange – and perhaps on more than one exchange.

That IPO would mark a significant milestone for Africa’s development, Africa’s capital markets and how Africa becomes even more investable.

We’ll leave the conversation on that note. The chair of the South African Oil and Gas Alliance’s Gas Economy Leadership Group, Craig Morkel, joined us to take a look at the [possible] impending IPO of Dangote Petroleum.

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