Aliko Dangote plans $16 billion Kenya refinery, with 70% of funding from debt

Africa’s richest man, Aliko Dangote, plans to finance most of a proposed $16 billion oil refinery in Kenya with debt, as construction of the project is expected to begin in October.

Dangote said about 70 percent of the estimated cost of the refinery in Lamu will be funded with debt, while the remaining 30 percent will come from equity. The financing structure means raising the debt will be one of the key steps before construction can move ahead.

“By October this year, we will be groundbreaking. Once we break the ground, we will begin the construction,” Dangote said recently.

The planned refinery would be built on Lamu Island and, if completed, would be the largest refinery in East Africa and the second-largest in Africa after Dangote’s 650,000-barrel-a-day facility in Lagos. The Nigerian refinery is expected to increase its capacity to 1.4 million barrels a day within three years.

Dangote, whose fortune is estimated at $31.1 billion by Forbes, is also looking to use proceeds from a planned listing of his Nigerian refinery to help fund the expansion of the Lagos plant and the proposed Kenyan project.

Lamu refinery targets East African demand

Lamu was chosen in part because of its location and access to the deep-water port that forms part of the Lamu Port-South Sudan-Ethiopia Transport, or LAPSSET, corridor.

The corridor is intended to connect Kenya’s coast with South Sudan and Ethiopia, giving the refinery a potential route into several regional markets. Dangote has said the facility would supply refined petroleum products to Kenya, Uganda, Tanzania and South Sudan.

The project would also give Kenya a domestic refining option after the shutdown of the Mombasa refinery left the country without crude-refining capacity. The government is separately working to develop oil production in the Turkana basin.

Kenya expects the refinery to create about 60,000 direct and indirect jobs during construction and related activities, according to government estimates. Those jobs could span engineering, construction, transport, logistics and other services linked to the project.

The refinery’s estimated cost has also fallen from earlier projections. Dangote has attributed the lower figure to experience gained from building the Lagos refinery, a faster construction timetable and lower financing costs.

Preparatory work, including soil studies, design and engineering, is already underway. The Kenyan government has also set up a committee for the project and provided seed funding under its infrastructure program.

Several issues still have to be resolved before full construction begins, including technical, environmental and financing requirements. Development around the LAPSSET corridor has also faced delays and other challenges in the past.

Dangote refinery IPO to fund expansion

The proposed Kenyan refinery is tied in part to Dangote’s plans to raise about $5 billion through a primary listing of Dangote Petroleum Refinery & Petrochemicals on the Nigerian Exchange.

The proceeds are expected to support the expansion of the Lagos refinery and help fund the planned Kenyan facility. The fundraising would give Dangote access to additional capital as the company seeks to expand its refining operations beyond Nigeria.

The planned initial public offering follows a $2.5 billion private placement that was completed to strengthen the refinery’s balance sheet. Dangote is targeting an October completion for the IPO, according to people familiar with the transaction.

The Lagos refinery has had a strong start since reaching full operating capacity earlier this year. The 650,000-barrel-a-day facility has increased sales of gasoline, diesel and jet fuel to markets across Africa.

It also increased aviation fuel exports to customers in Africa and Western Europe during the recent conflict in the Middle East, giving the refinery an opportunity to supply markets facing tighter fuel availability.

Interest in the planned share sale has extended beyond Nigeria. Financial advisers working on the transaction have held discussions with investors and market operators in South Africa, Kenya, Egypt, Ghana and Rwanda as they seek to attract investors from across the continent.

Kenyan institutional investors, including pension funds, could invest more than $500 million in the offering, according to people familiar with the discussions.

Dangote seeks Nigerian Exchange listing

Dangote Petroleum Refinery & Petrochemicals has applied to Nigeria’s Securities and Exchange Commission for approval to list on the Nigerian Exchange, according to a person familiar with the matter.

Regulatory approval could come within weeks, allowing the company to publish its prospectus as early as September.

The Nigerian listing could later be followed by a secondary listing in South Africa. The Johannesburg Stock Exchange, Africa’s largest stock exchange by market value, has been in discussions with Dangote Group about a potential listing after the refinery begins trading in Lagos.

The JSE has indicated that Dangote intends to complete the primary listing in Nigeria before considering a Johannesburg listing.

For Dangote, the fundraising is closely linked to the next stage of his refining plans. The Lagos plant provides the operating base, while the proposed Kenyan refinery would give the group a foothold in East Africa and access to a broader regional market for refined petroleum products.