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Africa money worthy cassava transformed into lucrative cash crop


The seeds of prosperity for some rural Africans may lie in a crop that has sustained them with calories for centuries but has generated virtually no wealth for their poor countries. Cassava - with its starchy root used to make tapioca - thrives in Africa's tropical climates, through drought or deluge, but maize and other crops have had distinct advantages over the hardy tuber. Until now. Cassava can remain in the soil for a couple of years but its main drawback has been that it has to be processed within 48 hours of harvesting or it spoils. An unlisted Dutch-based company called DADTCO has developed a processing method for cassava and dispatches a mobile unit with the equipment to rural villages, so farmers don't have to harvest their crop until it arrives. The implications could be revolutionary on a continent where much economic activity still centres on small-scale farming. The potential has already been spotted by global brewer SABMiller which has started making beer from cassava in northern Mozambique."This creates we believe a fly-wheel for commercial cassava production in Mozambique," Mark Bowman, the brewer's managing director for Africa, told the Reuters Africa Investment Summit in April.

"In the short term 1,400 or 1,500 farmers benefit directly. We expect we can grow that up to 6,000 farmers as the product grows," he said. DADTCO chief executive Peter Bolt told Reuters that similar projects are being rolled out in Zambia, Ghana and South Sudan with more to follow."Our target is to roll out in 26 or 27 sub-Saharan African countries in the next couple of years," he said in a telephone interview from his Netherlands base.

MORE THAN BEER And it's not only brewers that are focusing on cassava. Unilever , the Anglo-Dutch consumer goods giant, is targeting the root to make sorbitol, a key ingredient in toothpaste and other products. Unilever and some of its business partners are currently in talks about investing in a starch complex to process cassava into starch or sorbitol in Nigeria, which is the world's biggest producer of the root and a big market for Unilever's 3 billion euro a year Africa business.

"We are already in exploratory talks to source 100,000 tonnes of cassava per year for processing in Africa into sorbitol for use in our oral care products like toothpaste," said Frank Braeken, Unilever's executive vice president for Africa. It remains to be seen how far the "cassava revolution" can go but it surely raises new hope on the economic and food security fronts for the world's poorest continent. When it comes to pure sustenance and survival, cassava is hard to beat because of its durability, even if maize and other staples generally have higher starch contents. According to the International Institute of Tropical Agriculture, 37 percent of Africa's dietary energy comes from cassava and per capita consumption on the continent is close to 80 kgs per year. But instead of being grown primarily for household consumption, expect more cassava to be stored in the ground for eventual sale. Almost like money in the bank.

Air industry mulls jet fuel hedging options


DUBLIN Taking out complex call options or even buying a refinery are some of the measures airlines should consider as they try to combat volatile oil prices, air finance industry experts said. Jet fuel can account for anywhere from between 20 and 50 percent of an airline's operating costs, and predicting oil prices is a headache."No one knows where oil prices will be in six months, let alone 10 years away," James Dempsey, Ryanair (RYA. I) group treasurer, told a conference hosted by Airline Economics on Monday."Oil prices are one of the biggest risk factors in the business."Delta Air Lines (DAL. N) bought its own refinery in 2012 to address the risks from fuel prices. Even though the refinery turned only a small profit for the first time in the third quarter of 2013, over 60 percent of air finance executives polled at the conference on Monday believed this was a good move.

Some airline executives took a more cautious stance to such a suggestion however."We'll keep an eye on how successful they are," Gerry Laderman, senior Vice President for Finance and Treasurer at United Airlines told Reuters on the sidelines of the conference. Mike Corley, the chief executive of Mercatus Energy, an independent energy hedging, trading and risk management advisory firm, said airlines should take a more active approach to hedging fuel costs.

He gave the example of call options, which can be expensive but then protect airlines from rises in fuel prices, whilst also letting them track falls in the oil price."Airlines are very good at mitigating risk across the business but managing commodity price risk is often an area where they fall short," Corley said.

However, some airlines, badly burned from hedging losses in volatile oil markets, have scaled back hedging activities and more may follow. US Airways, which stopped hedging, is in the process of a merger with American Airlines, leading some to question what American's future hedging strategy will be."The U.S. industry right now is interesting," United's Laderman said, pointing to American. "Are they now going to stop hedging?"

Black friday could shine light on troubled us retail loans


Loan investors are watching the holiday shopping season for signs of respite as struggling US retailers, including ‎sporting goods retailer Bass Pro Shops, face resistance and higher financing costs in the leveraged loan market. The Retail Federation is predicting that retail sales in November and December will increase a solid 3.6% from last year to US$655.8bn and ‘Black Friday’ – the Friday after Thanksgiving – will be the biggest sales day of the holiday season for many retailers. Retail borrowers in the leveraged finance world have been hammered over the past 18 months as many brick-and-mortar chains continue to cede business to online sellers. “Like most sectors, retail remains a ‘have and have-not’ story when it comes to performance and access to debt capital,” a banker said. Average bids in the retail sector in the US secondary loan market of just over 95% of face value have been falling since mid-2015, when average bids were 98.5, according to Thomson Reuters LPC data. Retail sector average bids remain well below the average bid on the SMi100 of 98.64, the data shows. Retailers such as Toys “R” Us and fashion company Claire’s Stores have been struggling in the leveraged loan and high-yield bond space for years.  Toys “R” Us' term loan due in 2018 is trading at 95.5 after hitting lows of 70 in January and Claire’s Stores’ 7.75% notes due in 2020 are trading at 12.  Threats of a potential economic pullback are not helping, especially coupled with uncertainty over the economic direction of the country after Donald Trump beat Hillary Clinton in the US presidential election.

BIG NAME Bass Pro Shops is the latest big name to run into resistance in the loan market in November. In October, G-III Apparel Group had to increase pricing to 525bp over Libor with a 1% floor from guidance of 450bp-475bp on a US$650m term loan supporting its purchase of clothing brand Donna Karan. Bass Pro marketed a US$3.37bn term loan B and a US$500m asset-sale facility to support its acquisition of hunting and fishing specialist Cabela’s Inc. The company cut the size of a term loan B to US$2.97bn and increased pricing to 500bp over Libor with a 0.75% floor from initial guidance of 425bp over Libor after a weak response. Pricing on a US$500m loan, which will be repaid by a planned asset sale, was also increased to 475bp over Libor with a 0.75% floor after originally being offered to investors at 400bp. The company also added a US$400m term loan A that was made available only to relationship banks to cover the decreased size of the term loan. Term loan As are usually held by bank lenders and are more of a relationship play than B loans that are sold to a broader set of institutional buyers, including hedge funds, mutual funds and Collateralized Loan Obligation (CLO) funds.

Bankers and investors said they were not surprised to see the deal struggle as the retail sector has already seen many troubled names including American luxury department store Neiman Marcus and clothing company J. Crew. Apparel retailers have been hit particularly hard as they struggle to stay relevant in the fast-changing world of fashion. J. Crew’s term loan due in 2021 is trading at 68.67. The Neiman Marcus term loan due in 2020 is trading at 91.86.“There have been a number of high profile names within the high-yield/levered loan space that have struggled for years,” said Michael Terwilliger, global portfolio manager at Resource America, an investment company. “These high-profile struggles – even among well respected brands such as Neiman Marcus and J. Crew – will create a very challenging backdrop for retail credit going forward.”TOO EARLY TO CALL Political uncertainty has also added to concerns, although it is too early to say which way things will break under a Trump administration, say analysts. The president-elect’s policy proposals hint at the potential for the dollar to rise, which has already had a negative impact on some retailers, according to a November 9 report from Citigroup.

“Luxury retailers and department stores have been plagued by weaker tourism spend as the USD has strengthened against most global currencies,” the report said. However, the potential for lower taxes for both individuals and corporations could help discretionary spending, the report also said. Prior to the election, US retail sales came in better than expected in October, increasing 0.8%. Even when some deals have been challenging, there are some individual cases where banks are willing to underwrite for retailers with a good credit story. Goldman Sachs agreed to provide the debt to back online jeweler Blue Nile Inc’s US$500m buyout by Bain Capital and Bow Street, which was announced November 7. “Clearly there is a receptive audience for proven stories that have performed through recessions, but generally investors remain cautious on retail given most believe we are due for an economic pullback in next 18-36 months,” said the banker. But these are expected to be few and far between until companies in the sector are able to find a way to make their businesses more successful.“It's difficult to envision the market being willing to underwrite new retail LBOs amid what seems to be rather dramatic structural changes in the industry,” Terwilliger said.