GHANA OIL CO.

LIMITED
Ghana oil is an independent oil marketer incorporated in 1988. It was promoted by Mr Gilbert Quaye,
the current managing director. He has degrees in Geology and Business Administration and worked in
management consulting for 2 years before joining British Petroleum as a sales officer. He left for Elf Oil
after 4 years in BP (by then AP) and spent 12 years altogether. He left Elf as National Sales Manager
supervising a sales force of 135 officers and annual sales of $120 million. He is supported by Mr Eghosa
Osahon as Sales Manager and Mr Kweku Mensah as head of finance and administration. Mr Quaye
has been allotted 7.5% of the companys equity of which 4.5% is paid up.
The Companys board of directors is led by Mr Abass Danquah, a leading Kumasi-based architect. He
owns 5% of the companys equity. Other directors include 2 lawyers, an estate surveyor, an engineer
and a university professor who were all the MDs former classmates at Achimota College. The directors
together own 38% of the companys equity. The balance of 62% is held by 23 individuals who are all
professionals and are well known to the MD. No shareholder owns more than 7.5% of the companys
equity.
The company has 6 filling stations in Accra (3), Kumasi, Tema and Legon. These were built at a total cost
of $10mm, over a 6 year period. 1998 turnover was $5 mm by management accounts and the
company plans turnover of $10mm in 1999 and $20mm in 2000 from existing filling stations and
wholesale supplies. However, the company presently, (1999) reckons that it does minimum monthly
turnover of $1.5mm overall. The share capital of the company is currently $2mm ($1.5mm paid up). The
company also has two 33,000-litre tankers financed by a lease from Ghana Commercial Bank. These
were acquired in 1998 at a total cost of $0,5mm.
The company lifts 100,000 litres of diesel oil per fortnight for supply to Nestle Plc., Unilever Plc. and Safo
Group. The balance of its sales is made from filling stations (primarily Accra) where it sells premium motor
spirits. An average cycle for this line is 16 days. The company also lifts petroleum products in Kumasi for
sale in its Eastern operations. This company pays the depots in advance for its petroleum products
(Automotive Gas Oil (AGO) and Premium Motor Spirit (PMS)) and lifts every fortnight. Sales takes less
than 2 days for the PMS business and is primarily on cash basis, while for the AGO, it gives its customers
an average credit period of 14 days. Core of its sales (90%) is from the Accra, Tema and Legos area,
with Accra being the major contributor. Marketers Margins are 10% for PMS and AGO respectively;
volume is therefore a critical success factor in the business. PMS accounts for 90% of the companys
total monthly sales
The Company has plans to acquire a gas filling plant and a gas tanker. Feasibility studies have been
completed and pro forma invoices have been received from overseas equipment manufacturers. This
is estimated to cost $1 mm. The company also plans to build 4 filling stations in the Accra and Kumasi
area between now (1999) and 2000. In addition, the company proposes to build its head office
complex incorporating shopping and a filling station at the Spintex area of Accra. It has acquired 1
hectare of land for this purpose.

The Company has approached you for a $1 mm overdraft to support working capital. The money is
required to finance advance payments for petroleum products.
REQUIRED
What are the risks attributable to this credit? What is the likelihood that the actual loan purpose is to
provide additional working capital? How would you go about analysing and structuring this request?