‘Chocfinger’ ambitions soured by tough cocoa market; In the world of cocoa, there are few who know more about the market than the man dubbed “Chocfinger”

Last updated: November 24, 2013 12:24 pm

‘Chocfinger’ ambitions soured by tough cocoa market

By Emiko Terazono

In the world of cocoa, there are few who know more about the market than the man dubbed “Chocfinger”. So it was a shock to many in the commodities market when the London-based trading house Armajaro, co-founded by Anthony Ward, the canny trader known for his audacious trades in the cocoa market, had to be rescued earlier this month. Under pressure from its financing banks, his commodities and hedge fund group was forced into the fire sale of lossmaking Armajaro Trading – which moves physical cocoa, coffee and sugar around the world – to Swiss-based rival Ecom Agroindustrial.The privately owned Armajaro had struggled under difficult trading conditions in “soft” commodities of cocoa, coffee, sugar and cotton. It was left holding inventories as prices fell at the same time as its costs ballooned after expanding its business.

In the end, Armajaro Trading was scrambling for funds, and the company, which was valued at about $200m-$300m early last year, had shrunk to about $60-70m. After talks with several suitors fell through, the IFC, the investment arm of the World Bank, stepped in to facilitate a deal with Ecom, a publicity-shy commodities group with its roots in Barcelona.

That the two trading companies had similar businesses in the same areas made the deal an easy one. “One of the things that made [the deal] work was that they complemented each other perfectly,” says Alistair Mackie, at London based lawyers Holman Fenwick Willan, who advised Ecom.

Having been in the world of commodities after he left school in the late 1970s, Mr Ward has more than three decades of experience in the sector. The mild-mannered 53-year old came under the media spotlight in 2010 when his hedge fund amassed a large chunk of the world’s inventories of cocoa beans, pushing the price to a 33-year high.

“Anthony is highly talented with a strong work ethic,” says one cocoa sector expert. “He’s the one who built Armajaro into a force in cocoa.”

However, some commodities executives suggest that the seeds of Armajaro’s fate lie in Mr Ward’s very talent as a trader.

Commodities traders monitor supply and demand worldwide – data that they then use to arbitrage various price discrepancies on the futures and physical markets. But few have taken such a large position that are written about by the UK tabloid newspapers, as Mr Ward did.

Clients were unnerved by his large bet three years ago – where he took the biggest physical delivery of cocoa in 14 years, equal to 7 per cent of the world’s crop. Amid accusations of excessive speculation, a claim which Mr Ward has denied, some customers distanced themselves from Armajaro.

Mr Ward set up Armajaro, a trading house and a hedge fund business, with his friend Richard Gower in 1998. Armed with data and his extensive network of contacts, over the years Mr Ward made many bets on cocoa, some hugely successful, others lossmaking.

After 2010, the group re-emphasised the existence of Chinese walls between the two operations, and Mr Ward focused on his CC+ hedge fund, moving away from the trading unit.

The trading business also shifted strategy to supply chain management and moving physical commodities from producers to consumers rather than taking large trading positions. But this meant acquiring assets and hiring teams of people, which increased costs.

At the same time, growing competition in soft commodities led to lower margins. Customers were also demanding longer lead times for payment – the average length jumped from 30-60 days to 200 days, according to financing banks.

“You need a big balance sheet to do those things,” says one commodities executive. Another executive at a rival cocoa trader says: “Armajaro was like an overloaded plane. It couldn’t take off.”

Despite its challenges, the group harboured hopes of floating the trading business, and received a boost in early 2012 from the IFC which extended a $55m loan and took a 6 per cent stake.

Eventually, however, high costs and low margins took their toll and at the end of September last year, Armajaro Trading reported a net loss of $10.3m. The situation continued to deteriorate as most soft commodities markets declined in 2013. The company was caught with inventories when prices were falling, and in Brazil, it encountered problems with a large sugar contract.

The trading business was put up for sale several months ago, but a deal with an Asian suitor fell through earlier this month leading to talks with Ecom. “Ecom is a white knight,” says one of Armajaro’s lending banks.

It is unclear what Ecom is planning for Armajaro Trading, including whether they choose to maintain a presence in London. But from the offices of Armajaro’s asset management business in Mayfair, Mr Ward continues to oversee his hedge fund CC+. The market has not heard the last of Chocfinger.