Ghana is turning to its domestic capital market to finance cocoa purchases, testing whether the new funding model can sustainably replace an arrangement that underpinned the industry for decades.

Cocoa Capital PLC, a wholly owned subsidiary of the Ghana Cocoa Board (Cocobod), a regulatory body, plans to raise as much as GHS16.3bn ($1.4bn) through commercial paper and bonds, Ghana News Agency reported.

Cocoa Capital plans to issue as much as GHS14bn of short-term commercial paper to finance purchases during the 2026/27 season, while GHS2.3bn of medium- to long-term bonds will be used to refinance legacy Cocobod debt.

Repayment is structured around receivables from selected cocoa forward-sale contracts assigned to Cocoa Capital and channelled through ring-fenced accounts, although the commercial paper is classified as senior unsecured debt.

Cocoa Capital opened the bookbuild for its first 270-day commercial paper on September 28. The book was scheduled to close on September 30, with settlement on October 1, while the size of the first tranche was to be determined through the bookbuilding process.

Proceeds from the first issue can be used to finance cocoa purchases and may also repay a bridge facility linked to legacy Cocobod debt. The clearing yield, subscription level and amount ultimately placed will provide the first hard measure of investor appetite for Cocoa Capital’s new domestic funding structure — and the cost at which that financing can be raised.

Cocobod plans to raise the seasonal financing in three tranches, adjusting subsequent issues according to market demand, Deputy Chief Executive Ato Boateng said. That makes the pricing and subscription level of the first issue an early test of whether investor demand for the new funding structure is deep enough to support subsequent tranches through the crop season.

The shift follows the breakdown of Cocobod’s traditional syndicated-loan arrangement during the 2023/24 season. A subsequent effort to rely more heavily on pre-financing from international cocoa traders also ran into difficulty, adding to liquidity pressures across the purchasing chain.

Cocobod says the decision to move funding onshore is now a deliberate policy choice rather than evidence that it remains locked out of international markets. Boateng said international banks had approached the regulator about returning as lenders, but management preferred domestic financing amid a more stable cedi and lower local interest rates, according to Citi News.

Research published in June by academics from the University of Manchester, University of Ghana and SOAS University of London concluded that Ghana’s cocoa-purchasing financing requirements exceed the capacity of the domestic banking sector. Cocoa Capital’s model seeks to widen that funding base by drawing on the broader domestic capital markets, including pension funds and other institutional investors.

The study said smaller locally owned licensed buying companies are particularly exposed because they have less access to internal capital and multinational pre-financing.

Cocoa Capital chairman John Awuah has argued that capacity concerns are overstated because funding will be raised in stages as purchasing needs arise rather than requiring investors to provide the full GHS16.3bn at once.

Financing stress is already visible elsewhere in the cocoa-purchasing chain. IntelliNews reported that some cocoa buyers were facing borrowing rates as high as 40%, underscoring the cost of working-capital shortages. Investors considering Cocoa Capital’s securities are separately demanding compensation for Cocobod-linked credit and refinancing risks.

Cocobod’s debt history is also feeding calls for greater scrutiny of the new securities.

Bright Simons, vice-president of Accra-based think tank IMANI Africa, has urged pension trustees to examine the Cocoa Capital programme closely, pointing to Cocobod’s 2023 restructuring of Cocoa Bills. He noted that the new notes are senior unsecured and called for close scrutiny of programme documents and investor protections before pension funds commit capital.

The flexibility to use commercial-paper proceeds to repay bridge financing has also attracted scrutiny because investors buying short-term paper intended principally to support new-season purchases may also be funding the refinancing of earlier obligations.

Cocobod launched an exchange covering about GHS7.93bn of Cocoa Bills in July 2023, replacing short-term instruments with longer-dated securities. Some obligations to individual Cocoa Bill holders who did not participate in the restructuring remained outstanding until July 2026, when Cocobod said it settled the remaining GHS162mn.

A successful first tranche would demonstrate access to domestic liquidity, but a high clearing yield would underline the financing cost of the new model and could make subsequent tranches more difficult or more expensive to place.