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Olam secures funds for sustainable coffee work in Asia

Asia / 04-04-18 / by
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Days after announcing Asia’s first sustainable club loan, agribusiness conglomerate Olam has secured a US$163mn loan from two development banks.

The Asian Development Bank (ADB) and the Japan International Co-operation Agency (JICA) were the lenders on a facility which will be used to fund capital expenditure and working capital requirements in Vietnam, Indonesia, Timor-Leste and Papua New Guinea.

There are two tranches to the package: a five-year slice worth US$83mn and a seven-year tranche worth US$80mn. The seven-year tranche is for Café Outspan Vietnam Limited (COVL), a local subsidiary of Olam in Vietnam focused on soluble coffee manufacturing.

This is in addition to the USS$500mn sustainability-linked revolving credit facility the company inked last week. On that facility, the pricing will be reduced if it meets certain performance criteria. It attracted 15 lenders in equal parts, with Jayant Parande, Olam’s group treasurer, telling GTR that the company was in the market for sustainability-linked finance.

In this case, Olam is working with development banks, which usually offer preferential terms, although these have not been disclosed. This loan also has a sustainable facet: Olam will use the funds to improve sustainable agricultural value chains for tens of thousands of smallholder farmers in the countries stated. Among the capital expenditure will be the expansion of the COVL coffee processing plant in Vietnam, which will help advance the country’s agricultural sector.

Agriculture plays a key role in Vietnam’s economy, where 66% of the population live in rural areas, while smallholder farmers with 0.5 hectares or less land account for 70% of the rural population.

It is the world’s second-largest producer of coffee, providing 17% of the global market share, second only to Brazil. Advancing its coffee processing industry is a stated aim of the government in Vietnam, on its journey towards industrialised nation status.

“Developing formal value chains is essential for farmers in Asia and the Pacific to integrate with the global economy and increase the value of their products,” says ADB investments specialist Juhyun Jeong.

“Olam’s comprehensive and grassroots approach to improving agricultural value chains brings significant positive impacts to farmers and the agribusiness industry,” adds JICA’s investment officer Gyo Shibata.

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