Cocoa Crisis Hits Top Grower's Exporters as Banks Curb Loans

(Bloomberg) -- Domestic shippers in the world’s top cocoa producer are losing market share to foreign-backed competitors as exporters become ensnared in the fallout of the liquidation of Saf-Cacao.

Cocoa shippers in Ivory Coast are struggling to raise finance for the buying and storing of beans as lenders curb their exposure to the sector. Stung by about 150 billion CFA francs ($261 million) in unpaid debts by Saf-Cacao, formerly one of the biggest cocoa exporters before a court ordered the company’s liquidation in July, banks have curtailed their lending to minimize the risk of accumulating further losses.

Cocoa Crisis Hits Top Grower's Exporters as Banks Curb Loans

Since the start of the new season last month through Nov. 11, foreign-based exporters such as Cargill Inc., Olam International Ltd. and their local units have accounted for 72 percent of all cocoa arrivals at the two major ports in Abidjan and San Pedro, according to documents with government data seen by Bloomberg. That compares with 62 percent in the previous season through September, the documents showed.

The situation “is leaving local traders without access to cash and banks uneasy about financing the next campaign,” said Vincent Le Guennou, managing director of Emerging Capital Partners, which has a majority stake in pan-African lender Oragroup SA. It “has been dragging on for too long now.”

About-Turn

Price speculation was at the root of an about-turn in fortunes for Saf-Cacao, which purchased the second-highest volume of cocoa from Ivory Coast two years ago. After cocoa reached a six-year high in July 2016, the company was one of several local shippers who bet on further gains and was then caught wrong-footed, defaulting on 15,000 metric tons of cocoa for the annual season through September last year, according to an audit of the industry by KPMG.

The audit showed 32 exporters defaulted on 222,302 metric tons of cocoa, more than a 10th of the record crop of about 2.1 million tons harvested in the same season. Smaller exporters, which at the time were represented by industry groups known as Pmex and Coopex, accounted for 68 percent of unfulfilled contracts.

Last week, one of the biggest representative groups for domestic shippers met with the Professional Association of Banks and Financial Institutions to request more funding that will be vital to avoid a new wave of contract defaults, according to two people familiar with the matter. Talks are continuing even as lenders have little appetite to increase finance for as long as Saf-Cacao’s liquidation drags on, said the people, who asked not to be identified because the information isn’t public.

The banking association’s executive director, Serge Kouamelan, confirmed that the meeting took place, saying the parties “discussed the difficulties exporters are facing,” while declining to comment further when contacted by phone. A spokeswoman for the regulator didn’t answer calls seeking comment.

Saf-Cacao’s failure is prompting banks to “hold off on lending while the cocoa industry is under scrutiny,” Edward George, head of group research at Ecobank Transnational Inc. in London, said in a telephonic interview. “The slack will be taken up by big trading houses who have ample access to finance.”

It’s not only local exporters who are getting hit by the demise of Saf-Cacao. Domestic banks will struggle to absorb their losses, a situation that “would allow multinationals to regain real control over the sector by excluding local businesses with limited means,” Bank of Africa said last month in a report on the crisis.

Some of the local banks had provided more credit to Saf-Cacao than their buffers were able to absorb in an industry where the minimum capital requirement is 15 million euros ($17 million), said Laureen Kouassi-Olsson, the regional head for Western and Central Africa at Amethis Finance, a private-equity firm that owns part of CFG Bank, a Moroccan lender expanding in the region. Banks are not allowed to lend more than a fifth of their capital holdings to a single client, she said.

The sector’s non-performing loans rose to 9.9 percent at the end of 2017, from 9 percent the year before, according to the International Monetary Fund.

“There’s nothing to be done, unless the government works with a potential buyer” for Saf-Cacao, Kouassi-Olsson said in an interview. “The banks won’t have any choice but to write off some of the debt.”

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