PBC Seeks Guarantee to Cut Finance Costs

PBC Ltd., the biggest buyer of cocoa beans from farmers in Ghana, is seeking to cut borrowing costs by arranging its first government loan guarantee in seven years.

PBC is asking for a guarantee of as much as 400 million cedis ($91 million) from the government, acting Chief Executive Officer Nana Agyenim Boateng said in an interview. It’s also hired Accra-based Fidelity Bank Ltd. and the local unit of Standard Chartered Plc to market a 400 million-cedi one-year bond, mainly to pension funds, with the aim of lowering borrowing costs.

PBC, which buys cocoa from farmers in the world’s second-biggest producer and sells it to the regulator, needs to borrow money each season to fund the purchases. While the Ghana Cocoa Board offers financing at the central bank’s policy interest rate of 22.5 percent, it requires guarantees from borrowers and arranging them from banks is expensive, Boateng said.

The alternative is even costlier — the average bank lending rate to companies in the agricultural industry was 32.1 percent at the end of June, according to the Bank of Ghana.

“So long as we continue to lean on the banks, their rates will always be high and that will have a negative impact on our performance,” Boateng said. “A guarantee from government will help us to have funds ready for the season and erode a huge interest cost.”

The government, which owns about 37 percent of PBC while the state pension fund holds 38 percent, provided the company with guarantees from 2006 to 2010.

PBC bought about 30 percent of Ghana’s 2016-17 main crop, which ended in May. It’s 1.9 billion cedis of purchases in the bigger of the two annual harvests was partly financed with 441 million cedis in direct bank loans and 520 million cedis of bank guarantees to enable its borrow from the cocoa board, Boateng said.

PBC reported a loss of 15.9 million cedis in the year through September 2016, from a profit of 6.3 million cedis the year before. While revenue increased, a 29 percent increase in financing costs weighed on the earnings, according to its annual report.

The company is also in discussions with government to boost its capital base, but will probably wait until profitability improves, Boateng said.

Source: Bloomberg