Ghana's cocoa regulator has turned to local investors to help fund its purchases. Cocoa Capital PLC, a wholly owned subsidiary of the Ghana Cocoa Board (COCOBOD), has raised GH¢3.39 billion in its first commercial paper issue, according to a report by Citi Newsroom.
According to Citi Newsroom, the issue attracted bids worth about GH¢3.586 billion from 38 institutional investors. Cocoa Capital accepted 36 of those bids, worth a total of about GH¢3.396 billion.
Key details of the issue:
Citi Newsroom reports that selected receivables from executed cocoa forward-sales contracts were assigned to Cocoa Capital. Proceeds from those contracts flow through ring-fenced accounts under an agreed payment waterfall, which is meant to give investors confidence that they will be repaid.
The money raised will be used to mobilise domestic funding for cocoa purchases and other funding needs, according to the report.
COCOBOD Chief Executive Dr Ransford Abbey described the deal as a significant step towards reforming the financing framework of Ghana's cocoa industry, Citi Newsroom reports. The outlet said the strong demand reflected "investor confidence in the cocoa sector and the structure of the transaction", and described the programme as "a deliberate shift towards mobilising domestic savings to support cocoa purchases."
For decades, COCOBOD has funded its purchases of cocoa beans from farmers largely through external financing, especially large syndicated loans arranged with international banks and backed by future cocoa sales. That model came under pressure in recent seasons as production fell and the board's finances weakened.
Raising money from local investors through instruments listed on the Ghana Stock Exchange gives COCOBOD another source of funding and keeps more of the financing within the domestic economy. Citi Newsroom says the issue "establishes a new funding channel for the cocoa sector."
Timely financing is essential for COCOBOD to pay farmers promptly when they sell their beans. Delays in payment can push farmers to sell to smugglers in neighbouring countries, reducing the amount of cocoa that passes through official channels and hurting Ghana's export earnings.
Cocoa remains one of Ghana's most important exports, and millions of people depend on the crop for their livelihoods, especially in the Western, Western North, Ashanti, Ahafo, Bono, Eastern and Central regions.
For pension funds, insurers, banks and other institutional investors, the commercial paper offers a short-term, cedi-denominated investment linked to Ghana's most important agricultural export. The 11 per cent yield and the ring-fenced repayment structure appear to have attracted strong interest, with total bids exceeding the amount accepted.
Commercial paper is a short-term debt instrument that companies and public bodies use to raise money for periods of less than a year. Investors buy the paper and are repaid at the end of its term, earning a return in the form of the yield. Because it is short-term, commercial paper is often used to finance working capital, such as the money COCOBOD needs to buy cocoa during the season before the beans are sold to international buyers.
Listing the paper on the Ghana Stock Exchange makes the transaction more transparent and allows investors to see the terms of the deal publicly.
With GH¢16.3 billion available under the wider programme, further issues are likely as COCOBOD continues to finance the current cocoa season. Market watchers will be looking at whether future issues attract similar demand, and how the new funding model affects payments to farmers and the board's overall finances.
