Obtala Limited First Step in Expansion of Timber Trading Division
January 04 2018 - 5:45AM
RNS Non-Regulatory
TIDMOBT
Obtala Limited
04 January 2018
4 January 2018
Obtala Limited
("Obtala", the "Group" or the "Company")
(AIM: OBT)
First Step in Expansion of Timber Trading Division
Obtala Limited (AIM: OBT), the African focused agricultural and
forestry company, is pleased to announce the first step in the
expansion of its Timber Trading Division.
In June 2017, Obtala acquired WoodBois International ApS
('WoodBois'). Since its founding in 2004, WoodBois has generated
over $135m in cumulative revenue trading timber primarily sourced
from a network of over 100 African suppliers. WoodBois have always
maintained a diversified trading portfolio, with sales by customer,
geography, and species shifting year to year with the market. As a
result, the business has experienced only one default (a single
container sent during the financial crisis). We were delighted to
have acquired an exceptional trading business and management
team.
Since the completion of the WoodBois acquisition, Obtala has
been learning how to best drive profitable growth of WoodBois'
trading business. Since 2013, WoodBois' profits from timber trading
had been diverted towards financing timber production in Gabon.
Without reinvesting profits into the pool of available trading
capital, trading revenues had remained flat in the $15-19m range,
less than 0.5% of our estimate of the total market size for African
timber exports. According to FAOSTAT, over $770m of sawn wood and
$230m of veneer and plywood were exported from the Ivory Coast,
Gabon and Cameroon alone in 2016.
Obtala saw an opportunity to dramatically grow WoodBois' trading
revenues by providing the business with an external trade finance
facility (trading capital). Trade finance allows for a higher
volume of business by 'freeing up' capital otherwise tied up in the
form of inventory in warehouses or containers at sea. As announced
in our Q3 2017 update, we have been in discussion with a number of
parties to provide such a facility. During these conversations we
learned that as a result of Basel III Banking Supervision measures,
traditional banks are generally no longer providing commodity trade
finance at affordable rates due to the greater amount of capital
they must hold against commodity exposure. According to the African
Development Bank's Trade Finance in Africa survey report released
in October 2017, the resulting value of the trade finance 'gap' in
Africa remains significant at an estimated $91bn in 2014. This
despite the estimated default rate on trade finance transactions
being half the average of all bank asset classes.
Obtala's discussion with trade finance providers have primarily
been with funds, some of whom are funded by social impact investors
with the shared aim of addressing the trade finance gap for African
enterprises. We have found that structured commodity trade finance
is typically priced at 12-18%, with equipment finance over 20% with
less than 1 year duration. As these discussions have moved forward
and preparations for the implementation of an external facility
have been put in place (e.g. increasing insurance coverage at our
warehouse and signing a new trade credit insurance policy), as
announced on 2 January 4, 2018 the Board decided to raise a
separate or 'internal' pool of loan capital in order to complement
the proposed external facility. There are funding gaps in any
external trade finance facility (even fully insured receivables
cannot be funded 100%) which our own separate pool of loan capital
can cover. It also provides an opportunity for the Group to develop
the internal risk management discipline and processes which can
help raise additional loan capital and bring down the cost of these
funds, both internal and external, over time.
On 2 January 2018, Obtala announced it had secured an initial
$1m of loan capital at an 11.5% annual interest rate to complement
the external facility we are preparing to implement. This initial
amount demonstrates senior management's personal commitment to each
stage of the Group's fundraising and comes with a commitment to
develop market leading policies and procedures to manage it.
Additional trade finance is just the first step in unlocking the
potential of our timber trading division. Management has also been
deepening relationships with our key suppliers and trading
partners, identifying the most profitable trades and markets to
develop in order to maximize our return on capital. We expect 2018
to be an exciting year for our timber trading division as we begin
to increase our share of the growing African export market.
Obtala Limited
Miles Pelham - Chairman
Paul Dolan - CEO
Martin Collins - Deputy Chairman
www.obtala.com +44 (0)20 7099 1940
Northland Capital Partners Ltd (Nomad and Joint Broker)
Tom Price
David Hignell +44 (0)20 3861 6625
Brandon Hill Capital (Joint Broker)
Jonathan Evans +44 (0)20 3463 5000
Beaufort Securities Limited (Joint Broker)
Jon Belliss +44 (0)20 7382 8300
This information is provided by RNS
The company news service from the London Stock Exchange
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