Kenya clears GDR route for investors into Dangote refinery IPO

Kenya’s capital markets regulator has approved a structure allowing eligible Kenyan investors to participate in the initial public offering of Nigeria’s Dangote Petroleum Refinery & Petrochemicals through Global Depositary Receipts (GDRs), The Star reported on October 5.

The Capital Markets Authority approved a short-form prospectus submitted by Renaissance Capital Kenya, enabling investors to gain exposure to the Nigerian refinery without directly buying and holding its Nigerian-listed shares.

Under the structure, Kenyan investors subscribe through Renaissance Capital Kenya, which arranges for the corresponding funds to be used to acquire shares in the Nigerian IPO through its arrangements with Renaissance Capital Africa. The GDRs do not yet exist or trade on the Nairobi Securities Exchange (NSE).

The Dangote Petroleum Refinery IPO opened on September 14 and closes on October 13. Dangote is offering 4.1bn ordinary shares at NGN525 each, targeting about NGN2.15 trillion ($1.6bn), in what is set to be Africa’s largest IPO.

Once the offer closes, shares allocated to the Renaissance structure would back GDRs issued to Kenyan investors. Any subsequent NSE listing remains subject to sufficient share allocation and the required Nigerian regulatory approval. No listing date has been announced.

Dangote plans to use the IPO proceeds towards a $14.3bn expansion that would double the refinery’s processing capacity to 1.4mn barrels per day (bpd) from about 700,000 bpd.

The public offer follows a $2.5bn private placement completed in July that brought outside investors into the refinery ahead of the IPO. Demand for that placement was 3.7 times the original offer size.

MyStocks Research said the central valuation question is whether the refinery can sustain the strong margins recorded in the first half. It puts the offer at about 13.1 times annualised first-half earnings, rising to 19.3 times under a lower mid-cycle refining-margin scenario, while noting that the post-offer free float would be about 3.3%.

The underlying refining-margin and valuation risks would also apply to Kenyan GDR holders, while liquidity in the receipts will depend on trading once they are listed on the NSE.

The CMA stressed that approval of the prospectus does not constitute an investment recommendation and advised investors to seek professional advice because GDRs differ from conventional NSE securities.

The authority said it is the first transaction approved under Kenya’s GDR/GDN framework, opening a channel for Kenyan investors to participate in large share offerings elsewhere in Africa.

“CMA wishes to clarify that the DPRP IPO relates only to Dangote Petroleum Refinery & Petrochemicals FZE based in Nigeria, and at this time, is not an offer of shares in the Dangote East African Petroleum Refinery and Petrochemicals project in Lamu County,” the authority said.

Dangote broke ground in September on the planned $16bn, 700,000-bpd Lamu refinery, which has since faced legal challenges over project land and proposed state involvement.

See IntelliNews: Dangote's $16bn Kenya refinery faces second legal challenge over state stake