By Ayomide Otitoju
The Dangote Refinery initial public offering (IPO) is set to test the depth of Nigeria’s capital market and the extent to which ordinary investors can participate in Africa’s largest public share offer.
At ₦525 per share, investors can subscribe to a minimum of 10 shares for ₦5,250, giving them an opportunity to own a stake in the refinery, which is expected to have an equity value of about ₦65 trillion when listed.
The company’s offer of 4.1 billion new shares is expected to raise approximately ₦2.15 trillion. Based on the offer price and about 120.13 billion existing shares, the refinery’s post-offer valuation would be roughly ₦65 trillion, before any additional shares that may be allotted if the offer is oversubscribed.
The prospectus allows the company, subject to Securities and Exchange Commission (SEC) approval, to issue up to 30 per cent additional shares, potentially raising the proceeds to about ₦2.8 trillion.
With the Nigerian Exchange (NGX) equity market capitalisation at about ₦160 trillion in early September, the refinery could account for roughly 40 per cent of the market’s total value once listed.
However, the company’s valuation, the amount being raised and the number of shares available for trading are separate issues.
The 4.1 billion shares being offered represent about 3.3 per cent of the enlarged share capital. The actual free float will depend on existing shareholdings and applicable lock-up arrangements, including holdings by private-placement investors and the Nigerian National Petroleum Company Limited (NNPC).
The IPO will open on September 14 and close on October 13.
The offer is not underwritten, while the prospectus discloses a cornerstone subscription commitment of up to $400 million from a Mauritius-registered investment vehicle, representing roughly a quarter of the offer.
The remaining funds could come from domestic institutional investors, high-net-worth individuals, retail investors, diaspora and other eligible African investors, as well as new funds entering the market or investors reallocating existing investments.
The extent to which investors sell other listed equities to fund subscriptions will determine how much direct pressure the IPO places on the broader stock market.
Beyond the size of the offer, valuation remains a major consideration for investors.
At ₦525 per share, the company is valued at about $49 billion. While the valuation could be supported by the refinery’s scale, growth prospects, operating position and strategic location, investors will need to assess the company’s financial performance and future earnings against the offer price.
The prospectus also states that the company intends, subject to applicable laws and regulations, to declare dividends in US dollars, while retaining the option to pay in naira or another currency.
However, dividend payments are not guaranteed and would depend on the company’s performance, cash requirements and decisions of its board.
The refinery also has an expansion programme estimated at $14.3 billion, aimed at increasing refining capacity from 650,000 barrels per day to 1.4 million barrels per day by 2029.
Proceeds from the IPO are expected to finance only about a tenth of the expansion, with the balance to come from cash flow and borrowing.
The IPO’s low minimum subscription and distribution through banks, fintech platforms, mobile-money operators and stockbrokers are designed to broaden participation by retail investors.
The prospectus also provides that eligible retail investors who retain their shares for 12 months will receive one bonus share, with another bonus share available after 24 months, subject to the stated terms.
The offer could therefore expand direct retail participation in a company of significant national and continental importance.
However, a low entry price does not eliminate investment risk. Investors would still need to consider the company’s valuation, profitability, liquidity, dividend prospects and the risks associated with the refinery’s expansion programme.
The listing could also have wider implications for the Nigerian and African capital markets.
If the shares develop strong liquidity, credible price discovery and effective corporate governance after listing, the offering could strengthen the capacity of African exchanges to accommodate companies of global scale.
The size of the company, however, does not automatically guarantee a deep secondary market. With a potentially limited free float, the shares could experience significant price movements, while a strong initial subscription would not necessarily translate into sustained liquidity after listing.
The ultimate test, therefore, will extend beyond the number of investors who subscribe.
The IPO’s broader impact will depend on whether it contributes to a deeper, better-informed and more inclusive Nigerian capital market capable of financing companies with similar ambitions.
Sadiq Tijani, an Equity Analyst with Coronation Research, prepared the analysis.
The article reflects Coronation Research’s analysis and is not investment advice. Investors are advised to read the approved prospectus and, where appropriate, consult professional advisers before investing.
