International lenders withdraw from $1.3bn Cocoa Syndication Loan citing Covid-19 risks

International lenders have refused to underwrite the risk of $1.3 billion cocoa syndication loan for the 2020/21 crop season.

These lenders, according to Reuters, have cited the uncertainty amid the Coronavirus Pandemic as reason for their unexpected decision.

This decision by international lenders is in sharp contrast to the confidence assurance by the Chief Executive of COCOBOD, Joseph Boateng Aidoo that “not even the coronavirus will affect the syndication loan”.

Joy Business gathers that the next plan will be for the loan to be raised by a group of at least 13 banks, providing ticket sizes of approximately $75 million, although the actual size hasn’t been decided yet.

What this means is that Cocobod is expected to pay up for the club loan, reversing the downward trend in pricing it has enjoyed in previous years.

“Banks are not willing to take the underwriting risk. It will be a club loan with a group of around 12 or 13 banks, with a couple of banks acting as coordinators. This will be the first club style deal COCOBOD has done since the financial crisis.

“The deal is progressing well but the size has not been finalized. The size will not be about lender appetite though, it will, as usual, be a function of how much is needed for the cocoa production,” a banker told Reuters.

Reuters had also revealed the 2019/20 pre-export financing priced at 50bp over Libor, resulting in some lenders turning down the deal as the economics didn’t work. Pricing dropped from 62.5bp in 2018 on a $1.3 billion financing and 65bp in 2017 on a $1.3 billion financing. It paid 67.5bp in 2016 on a $1.8 billion financing.

Earlier, head of corporate affairs at COCOBOD, Fiifi Boafo, disclosed to Joy Business that “the peg of $1.3 billion for the Syndication loan will remain as it is. Nothing will change”.

The coronavirus Pandemic has had a dark turn on global cocoa value chains. Despite the obvious challenges, Ghana’s cocoa regulator still insists days are bright for cocoa farmers.

CEO of COCOBOD, who earlier revealed in a video interview with Joy Business that the coronavirus had caused Ghana’s cocoa industry a loss of $1 billion.

“The buyers have closed their windows so we are not buying. The price of Cocoa has tumbled. Immediately it brings to Ghana a deficit of almost $1 billion. If this thing should continue, paying our farmers will be difficult,” Joseph Boahen Aidoo disclosed.

So far, COCOBOD has established a risk assessment committee to study price trends among others things as the coronavirus pandemic cause havoc to commodity prices on the global market

COCOBOD will use the facility to raise cocoa yields per hectare and increase Ghana’s overall production.

These include financial interventions to sustainably increase cocoa plant fertility, improving irrigation systems, rehabilitating aged and disease-infected farms. The funds will also help increase warehouse capacity and provide support to local cocoa-processing companies.

Ghana’s cocoa sector employs some 800,000 rural families and produces crops worth about $2 billion in foreign exchange annually – considering the ravaging effects of the Coronavirus on economies, COCOBOD fears the future of small-holder cocoa farmers could be bleak.