Bank lending concerns grow amid cocoa group bankruptcy

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The blow from the bankruptcy of a key cocoa industry player, Transmar Commodity Group, at the end of 2016 has been cushioned by excess inventory and other suppliers stepping in and making sure a key ingredient for chocolate is available for confectioner makers.

Transmar Commodity Group, a top 10 supplier of cocoa beans and processed products, filed for Chapter 11 in the US bankruptcy courts in New York last December with debts of more than $400m, according to court filings. Its problems stem primarily from financial issues at its European affiliate Euromar, whose financial predicament worsened after the UK voted in June to leave the EU. Its client list includes leading chocolate makers such as Hershey, Mars and Nestle.

However, expectations of bumper supplies from west Africa, the leading regional producer of cocoa beans, has weighed on prices and cocoa traders say that has reduced broad market concerns in the wake of Transmar’s bankruptcy.

While chocoholics can rest easy about the supplies of their favorite confectionery, cocoa traders and processors, who trade the key ingredients, are worried that the insolvency would make access to bank credit more difficult.

Transmar’ssharp decline in collateral value described in a filing by ABN Amro, an administrative and collateral agent for a group of banks behind a credit facility extended to the cocoa group, has surprised many in the industry.

ABN said that as of October 28, 2016, Transmar reported more than $555m for its collateral, which fell by more than $313m to $242m as of the end of November.

“The lenders now have reason to suspect that the monthly borrowing base reports were inaccurate, if not falsified for many months before October 2016 and that the impropriety may trace back before the credit agreement,” the bank says in a court filing.Transmar’s lawyers said that it would respond to allegations “in court at the right time.”

Other cocoa specialists are worried that the tightening of finance will extend to other “soft” commodities such as coffee.Transmar’s insolvency highlights the risks of commodity trading where volatility can hit, possibly wreaking havoc for the small and medium sized players. Trading of soft commodities tends to be capital intensive, while the market can react violently to factors such as bad weather, political instability and currency moves.

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