The Dangote Petroleum Refinery is defending its proposed valuation of nearly $49 billion, arguing that its location, scale and access to key resources give it a stronger economic position than many competing refineries globally. David Bird, CEO of Dangote Petroleum Refinery, said investors should look beyond headline refining capacity when assessing the company ahead of its planned IPO on the Nigerian Exchange.

Bird pointed to the refinery’s 650,000 barrels-per-day capacity, proximity to crude supplies, access to relatively cheap natural gas and its location near one of Africa’s largest fuel markets. He argued that comparing Dangote directly with US refiners such as HF Sinclair, which has a market capitalisation of about $19 billion, overlooks the cost advantages of producing fuel close to its end market. Unlike many overseas competitors, Dangote can reduce transportation costs while selling into a market where fuel prices are influenced by import-parity pricing.

The refinery’s management also maintains that its valuation is not based solely on the unusually strong refining margins seen recently. Bird said Dangote’s $14 billion Vision 2030 expansion programme was approved in January using “through-the-cycle” assumptions. While stronger margins have improved cash flow and reduced the company’s reliance on borrowing, he described the recent windfall as an additional benefit rather than the foundation of the investment case.

Dangote is also preparing for a potential shake-out in the global refining industry as ageing facilities face higher operating costs, major maintenance requirements and tighter environmental standards. Bird expects future downturns to put greater pressure on older refineries, particularly in Europe, while Dangote could retain an advantage because imported fuel still carries significant freight costs before reaching the Nigerian market. The company believes its ability to remain competitive during weaker refining cycles will be central to supporting its long-term valuation.

The next major test will be Vision 2030, under which Dangote plans to increase refining capacity to about 1.4 million barrels per day alongside additional petrochemical and distribution infrastructure. Bird said the expansion could require less capital per additional unit of capacity because the company already has land, utilities and shared infrastructure in place. For investors, the proposed $49 billion valuation therefore represents a long-term bet on Dangote’s cost advantages, expansion strategy and ability to remain profitable when global refining margins eventually weaken.

source: The African report