COCOBOD, Ghana’s state owned cocoa industry regulator and facilitator is planning to refinance its growing long term debt, currently standing at some GHc6 billion. This debt, accumulated over several years – and entirely different from its annual self- amortizing borrowing from a consortium of international banks for cocoa purchases from local farmers – is being financed by issuance of short term cocoa bills through auctions by the Bank of Ghana at relatively high cost, currently an annualized 16 percent. The Board’s plans were explained to Goldstreet Business by its Deputy Managing Director, Finance and Administration, Mr Ray Ankrah.
COCOBOD’s management reckons that it can refinance the debt through a medium to long term borrowing of between five to seven years from either a foreign consortium of banks or a bond issuance on the international capital markets and is thus working towards this, expecting to complete a refinancing deal over the next one year.
The move is coming on the back of COCOBOD’s receiving Parliamentary approval in December to borrow US$300 million from a syndicate of foreign banks through a three year, receivables backed facility collaterized by 150,000 tons of cocoa at a projected price of US$2,200 per ton. The loan was approved to refinance COCOBOD’s financing gap for the 2018/19 crop season.
Instructively, the international financial community sees COCOBOD as a better credit risk than government itself, which is illustrated by the fact that COCOBOD is able to borrow on the international financial markets far more cheaply than government itself can, paying about three percent currently on its annual, dollar denominated syndicated loans, whereas government pays well over six percent on its Eurobond issues, albeit of much longer tenors.
COCOBOD can reduce its financing costs by replacing its cedi denominated short term local borrowing with cheaper, longer term foreign borrowing since most of its earnings are in foreign currency, thereby eliminating foreign exchange rate risk.
COCOBOD’s growing long term indebtedness – which grew by GHc2.07 billion in 2018 – is the result of the current unfavourable economics it faces. At the current world price of US$2,200 per ton, COCOBOD is incurring a financing gap. This is because farmers are getting (the cedi equivalent of) US$1,700 per ton and state sponsored service and input support add on another US$700 per ton in further costs. Thus COCOBOD needs an international markets price of at least US$2,400 per to to break even. Even though the ongoing migration towards commercialization of service and input costs, the tightening of internal running costs, and firming up of international market prices are combining to reduce the resultant annual deficit, it is still projected at about GHc1 billion for 2019.
However, COCOBOD will have to go beyond reducing its annual financing gap, to reversing it completely in order to eventually amortize its indebtedness. To do this the Board is looking to reduce its operating costs, based on the finding of a forensic examination of its costs which it conducted recently. Key in this regard are ongoing efforts to drastically increase cocoa farmer productivity to enable them pay for their inputs and support services on commercial terms without state subsidies. Expectedly, when this policy is fully implemented COCOBOD will be able to make annual surpluses rather than deficits as long as the international market price exceeds the local, state guaranteed, farm gate price.
By Toma Imirhe