Rating Release

Agusto & Co. hereby assigns a “Bbb+” rating to Abuja Steel Mills Limited

The rating expires on 30 June 2023.

Agusto & Co. hereby assigns a “Bbb+” rating to Abuja Steel Mills Limited (“Abuja Steel Mills”, “ABSM” or “the Company”). The rating reflects our opinion on the Company’s satisfactory financial condition evidenced by its healthy operating cash flows and good profitability levels despite rising input and energy cost pressures. The rating also considers ABSM’s expanding steel melting and rolling capacities and the prospect of a Direct Reduced Iron (DRI) production – a backward integration initiative that will help to build some resilience against price fluctuations and shortages associated with the use of scrap metal as core input. However, the rating is constrained by concerns over the Company’s rising debt profile as well as its persistent working capital problems and concentrated ownership structure. This is in addition to the vulnerability of its future earnings to macroeconomic headwinds given the undue exposure of its production process (imported spares and other consumables) to external shocks and foreign exchange risks.

Abuja Steel Mills Limited is an integrated steel producer in Nigeria and a member of the African Industries Group (AIG). The Company is focused on the recycling of scrap metal to produce reinforcement bars and billets through the process of melting and rolling. However, management has disclosed plans to commence the Direct Reduction Iron (DRI) process, which is essentially the removal of oxygen from iron ore or other iron-bearing materials in their solid state without melting. The DRI project is expected to significantly reduce reliance on scrap metal as core inputs as well as ABSM’s overall energy costs.

The opinions expressed in this rating release do not represent investment or other advice and should therefore not be construed as such. Visit www.agusto.com for further information.