COCOBOD syndication oversubscribed

A consortium of local and international finance institutions is offering to lend the Ghana Cocoa Board (COCOBOD) some US$2.1 billion in excess of its request for US$1.2 billion.

The oversubscription of the board’s cocoa backed loan means that COCOBOD would have to return the excess funds, which are nearly 100 per cent above the stated requirement.

The funds are to be used to purchase cocoa beans in the 2013/2014 crop season.

The board’s Public Affairs Manager, Mr Noah Amenyah, said in an interview that the oversubscription was another testament of COCOBOD’s growing credibility, especially in the eyes of the international finance community.

“We asked for US$1.2 billion but the banks said they are willing to give us as much as US$2.1 billion or even more. That means the international community has a lot of confidence in Ghana’s cocoa industry,” Mr Amenyah told the GRAPHIC BUSINESS on July 24.

“It also shows that they (financial institutions) see COCOBOD as a credible partner that always repay (its loans) without delays,” he added.

The Societe Generale (SG) Group, which is leading this year’s syndication, confirmed in a telephone interview that the offer was “heavily oversubscribed” but declined to give details.

The Managing Director of SG Ghana, Mr Gilbert Hie, said in an interview that more than 100 local and international banks had expressed interest to participate in the syndication.

This year’s offer, which is the 20th in a roll, has since been closed, according to the SG Ghana MD, and will be signed in September this year.

COCOBOD, which regulates Ghana’s premium cocoa sector, has, since 1993, resorted to loan syndications from the global financial market to purchase cocoa beans from farmers on annual basis.

The loan is often guaranteed by the season’s cocoa beans as the arrangement makes it a cocoa trade-financing facility.

The total amount of syndicated funds per a year has been on the rise, rising from US$140 million in the 1993/1994 crop season to peak at US$2 billion in the 2011/2012 cocoa season, the period Ghana grossed over one million metric tonnes of the bean.

The current US$1.2 million loan facility was approved by Parliament on July 19 and its total amount is US$300 million shy of the US$1.5 billion that was raised for the just ended 2012/2013 crop season.

COCOBOD has since finished repaying last year’s loan, according to its Public Affairs Manager, and is now set to sign for the new one should the lead bank, SG, conclude with the necessary arrangements.

The motivating factors

Although COCOBOD welcomed the oversubscription of the offer, its Public Affairs Manager said “unfortunately, we will not accept all the bids.”

“We will only take what we asked for, the US$1.2 billion,” Mr Amenyah said, citing the implication on repayments.

“We could have accepted everything but the question is will we be able to repay all? Also, the amount we raise annually always depends on the output we anticipate and accepting the excess will mean that the loan will be more than our target and repayments definitely will be a problem,” he explained.

The over subscription of this year’s offer is not particularly different as the one for the last crop season was equally oversubscribed. 

Even the US$2 billion, raised for the 2011/2012 crop season, was heavily oversubscribed as appetites for COCOBOD’s activities on the global financial market continue to grow.

Although COCOBOD has always declined to disclose the financial arrangements on the deal, including the interest charged, the Head of Brokerage at Ecobank Development Corporation (EDC), Mr Mahama Iddrisu, said the oversubscription had more to do with the board’s ability to repay rather than on the yield.

“Many investors are not particularly interested in high interest rates; they rather look at the risk associated with the offer,” he said, adding that the uncertainty in the global economy has caused most people to look at getting their funds back instead of going after high yielding investments. 

Meanwhle, news of the over-subscription of COCOBOD’s loan came on the heels of the oversubscription of the country’s second Eurobond.

The offer, which had Barclays Debt Capital and the Citi Group, as lead managers was oversubscribed by US$1.2 billion at a coupon rate of about 7.9 per cent.

Although many capital market analysts had cited the country’s fiscal slippages and the general squeeze in funds from investors as factors that could have lowered investor appetite to the offer, Mr Iddrisu of EDC, who is part of this year’s Eurobond Trasaction Committee, had told the GRAPHIC BUSINESS prior to the offer that such assessions were untrue.

“Nobody should think that the funds are not there; as for money, it’s there. The problem is how you can assure the investor that his money will be safe and repaid if it is given out,” he said.

By Maxwell Adombila Akalaare/Graphic Business/Ghana

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