Dangote's Planned IPO Sparks Investor Frenzy in Nigeria
Nigerian tycoon Femi Otedola is preparing to invest $100 million. Hundreds of miles away, Wuroyda Danke, a 28-year-old security guard, plans to spend $150 borrowed from his grandmother. In Texas, Galahard Woghiren is lining up a $3,000 investment. All three have the same goal: buying a stake in Aliko Dangote's refinery business.
Dangote Petroleum Refinery and Petrochemicals FZE's plan to raise as much as $2 billion in Africa's biggest initial public offering has sparked an investor frenzy across Nigeria, drawing interest from some of the country's wealthiest people to first-time investors. A rare public market debut for an industrial asset of this scale on the continent will be a once-in-a-generation test of market depth.
Otedola sold his stake in Nigeria's biggest power generator by value to help free up capital. Even though Dangote has yet to disclose details for the sale, local banks and brokerages are helping drive interest in Africa's most-populous nation by opening accounts for students, engineers, bankers and small-business owners, and offering credit to some investors. The push evokes memories of the retail-investing boom that ended with the global financial crisis and led to a retreat from equities.
While global equity markets have been captivated by listings of artificial intelligence startups, investors in Africa are betting on something far more tangible: energy security. The enthusiasm surrounding the Dangote Refinery reflects the strategic importance of the facility in Africa and beyond. Built at a cost of about $20 billion, the 650,000-barrel-a-day refinery, whose capacity has since been expanded by 8 percent, reached full capacity weeks before the Middle East conflict intensified concerns about global fuel supplies. Dangote plans to use the IPO proceeds to expand the refinery further and is seeking a valuation of more than $40 billion.
The IPO's "significance goes beyond the transaction itself," said Danladi Verheijen, the Lagos-based managing partner of private equity firm Verod Capital Management. "It has the potential to strengthen the foundations of the market in ways that matter directly to long-term investors."
The sale could help address the lack of depth of the Nigerian market. Economists at Proshare, a local provider of market data and research, describe the bourse as "marred by shallowness and limited breadth," with market capitalization equivalent to just 22 percent of gross domestic product.
That compares with 131 percent in India and 245 percent in South Africa, highlighting how much economic activity remains outside the public markets, and dependent on banks.
Policymakers are also clearing a path for demand. Nigeria's National Pension Commission relaxed rules that prevented funds from investing in IPOs of companies without a dividend-paying track record, giving issuers access to a retirement-savings pool worth more than $17 billion.Yet long-term Nigerian investors will need some convincing to return to equities after years of disappointment and volatility.
They have reason to be wary. During the mid-2000s banking recapitalization, lenders raised billions of naira from retail investors, many of whom borrowed from them to buy their shares.
When the stock market crashed in 2008, those loans turned sour, triggering forced sales, steep losses and a banking crisis that led the central bank to intervene in eight lenders. The episode, compounded by years of currency volatility and economic shocks, shattered confidence in equities.To avoid a repeat, Nigeria's Securities and Exchange Commission on Tuesday ordered brokers to stop promoting the IPO, adding that the regulator hadn't received any application for the sale.
Still, the offer could be the catalyst needed to draw retail investors and deepen the market. The refinery received $2 billion of demand for a private placement of shares, the tycoon said on news channel Arise TV on May 21. That's double the $1 billion the company was seeking to raise at a valuation of $39.1 billion, according to a copy of the prospectus seen by Bloomberg.
"We have successfully completed a number of domestic and international company introduction and market sounding activities and have been encouraged by the level of interest received from both local and international investors,'' the company said in a response to queries. The group hasn't finalized the size, timing or structure of the IPO, it said.
Demand for the sale has also been bolstered by a 58 percent jump - in dollar terms - in Nigeria's benchmark stock index this year, second only to South Korea's AI-driven market rally.
The listing of the Dangote Refinery would have a "tremendous" positive impact on Nigeria and regional capital markets, said Aigboje Aig-Imoukhuede, chairman of Access Holdings Plc, parent of Access Bank Plc, Nigeria's largest lender. It is a "potential game changer that could attract international investment" into the region, he said.
Brokerages are already seeing brisk business. New accounts at Meristem Securities Ltd. jumped fivefold this year, while Nkoli Edoka, chief executive officer at Cowry Securities Ltd. said some individual investors are seeking lines of credit to ensure that they do not miss out on the IPO.
"We are seeing a new class of first-time investors entering the Nigerian capital market, many of whom are explicitly motivated by their desire to participate," in the Dangote Refinery IPO, said Onyeka Alika, head of retail trading at Meristem.
The nation had about 6 million registered investors last year, according to the Nigerian Exchange Group. Investors lining up for the IPO are betting Dangote will help boost their wealth.
"Dangote is a billionaire which means he knows what he is doing," said Danke, the security guard in a small town about 1,000 kilometers (620 miles) northeast of Lagos. "I think buying some shares will help me make money too," adding that apart from borrowing from his grandmother he will channel some of his savings into the offering.
Another attraction for Nigerians who have endured multiple currency devaluations is Dangote's plan to pay dividends in dollars.
Take Felix Kama, 32, an employee at Standard Chartered Plc's Nigeria unit. The IPO will be his first equity investment in the country, drawn by the prospect of dollar-denominated returns.
For others, including Woghiren, a Nigerian based in Texas, and Imoh Okoronkwo, a research assistant at the Glasgow Caledonian University, it's the size of the Dangote's enterprise that's attractive. Okoronkwo has been searching for brokers so he can apply for the IPO.
"What appeals to me most about the Dangote Refinery IPO is its scale, strategic importance, and long‑term earning potential of the company," he said. "I see it as a rare African industrial asset with strong export potential."
The guaranteed market for Dangote Refinery's products and the capacity to provide dollar-denominated dividends makes it an attractive buy, said Bismarck Rewane, CEO at Lagos-based Financial Derivatives Co.
The refinery, which started operation in January 2024, has become a key source of refined products. It is now a major supplier of jet fuel exports to Europe, with cargoes from the plant already sold through mid-July, according to Dangote.
"Some people are going to be selling some stocks to buy Dangote Refinery," Rewane said, describing the company as a bellwether, with prospects to outperform. "It is an interesting and attractive investment."
Investors appear to agree, betting that the refinery's exceptional start can be sustained. Dangote Refinery posted an earnings margin before interest, taxes, depreciation and amortization of 23 percent last year, according to people with knowledge of the company's finances, placing it among the world's most profitable refiners.
Whether those returns prove durable remains an open question, according to Ambrose Omorodion, chief operating officer at Lagos-based Investdata Consulting Ltd. The refinery has operated at commercial scale for only a short period, and is yet to be tested through a full commodity cycle.
Refining margins can be volatile, while shifts in crude prices, regulation and global fuel demand could weigh on profitability. Some of the refinery's recent momentum has also been supported by disruptions linked to the conflict in the Middle East, which may fade as tensions ease.
"A year is not enough to base a decision,'' said Omorodion. "For companies that are in that kind of business, five years will be the timeframe and for banks it's three years to have a good insight on performance."
Dangote's firms have made money for investors. The group's cement unit has gained seven-fold since its initial share sale in 2010, while Dangote Sugar Refinery Plc has advanced almost fourfold since 2007.
"I have appealed" to Dangote, Otedola said during a visit to the refinery in May, asking the billionaire to sell him a $100 million stake through a private placement.
The crisis in the Middle East has been "beneficial" for the refinery, fertilizer and petrochemical businesses, Dangote said in an interview with Nicolai Tangen, CEO of Norges Bank Investment Management.
And that in part will help investors realize the importance of the plant.
"We can see the excitement already about the IPO, not only in Nigeria, beyond Nigeria," Finance Minister Taiwo Oyedele said in an interview. "If you get a million people to invest and then they see appreciation over time, they have more disposable income, they have more wealth."Sign up here for the daily Next Africa newsletter and subscribe to the Next Africa podcast on Apple, Spotify or anywhere you listen.
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