Interesting read from a banker wrt financing in the bio industry:
Gabriel Buck, Managing Director: Global Head of CAPEX Finance
Solutions,Barclays
From your perspective when should a project team start to think
about raising the finance for each stage of the product development?
The simple answer to that is much earlier than they are currently. Pre 2007, there was an abundance of financing liquidity, then it was acceptable for sponsors to look at a Project undertake some limited structuring and then go to the financing market to raise capital including long term funding. Those days have gone; in today’s market, more upfront work and due diligence is required. I think it’s really at a time when they’ve got seed capital, to large extent development capital raised and when they’ve got a strong business plan. I stress the word plan which should include a number of strong stakeholders who can provide credibility from a technical, from a market and from an operational aspect. It’s at that point in time when they have that grouping together, that I think they need to be looking to bring a bank on board who would act as an advisor in terms of the considerations that they need to bring to bear in terms of how they package, and start to think about the project from a financing standpoint.”
Where are companies within the bio-fuels and bio- based chemical
sectors currently sourcing their finance from?
I think there’s an element of green subsidies, that are available and companies can leverage on these and secure financing. As subsidies are reduced or as the terms become less attractive the challenge is where do you raise the financing? If you are trying to do it on a project basis that’s a difficult call. I suspect that those projects that had raised capital have
done so on the back of support from parent companies via corporate funding and support”
So the current climate very much plays into the hands of the bigger
players, and the bigger player you are the more scope you have for
raising capital and getting hold of finance?
Yes, I think that large corporates would like to see projects operate on a standalone basis but the commercial reality is that direct support is more often than not required for projects emerging in new sectors. Large corporations prefer that the funding isn’t tapped from the company's own funding lines.”
Why do you believe investors are getting interested in the bio-fuels
markets, what is there in the market that is attracting investors?
Well, I think that comes down to yield. Where the transaction has been properly structured, where you have got high quality sponsors, where the technical and commercial risks are being wrapped, there is not only interest from a diversification of portfolio perspective but there’s also a pickup in yield.
I think the key risks for investors are the technical, the feedstock and the construction of plant risks. Once the construction and technical aspects have been covered and you’ve got sight of a transaction which is operating then it will step down in terms of risk and will be cash yielding. At this point the wider investment community will be interested and the
original investors will be in a position to assess how to value extract and optimise their original investment”
How can companies manage the technology risk specifically on a bio
based project?
This is all about bringing in experience and entities with a strong track record when it comes to delivery. We get attracted to certain transactions because of the quality of the sponsors. Remember banks alone are not equipped to fully assess all the technology risks associated with bio-
fuels projects but we are good at assessing large corporates who are willing to take the technology risk. If there is a technology risk on a particular project for example, having unknown and unproven sponsors is not going to be as strong as, for example, BP or Shell.
Because we know that those large organisations will find and dedicate resources as the project is developing.”
Read more at page 15-16:
https://www.filepicker.io/api/file/9jBEGvebTiyZXW4dmO7w
Gabriel Buck, Managing Director: Global Head of CAPEX Finance
Solutions,Barclays
From your perspective when should a project team start to think
about raising the finance for each stage of the product development?
The simple answer to that is much earlier than they are currently. Pre 2007, there was an abundance of financing liquidity, then it was acceptable for sponsors to look at a Project undertake some limited structuring and then go to the financing market to raise capital including long term funding. Those days have gone; in today’s market, more upfront work and due diligence is required. I think it’s really at a time when they’ve got seed capital, to large extent development capital raised and when they’ve got a strong business plan. I stress the word plan which should include a number of strong stakeholders who can provide credibility from a technical, from a market and from an operational aspect. It’s at that point in time when they have that grouping together, that I think they need to be looking to bring a bank on board who would act as an advisor in terms of the considerations that they need to bring to bear in terms of how they package, and start to think about the project from a financing standpoint.”
Where are companies within the bio-fuels and bio- based chemical
sectors currently sourcing their finance from?
I think there’s an element of green subsidies, that are available and companies can leverage on these and secure financing. As subsidies are reduced or as the terms become less attractive the challenge is where do you raise the financing? If you are trying to do it on a project basis that’s a difficult call. I suspect that those projects that had raised capital have
done so on the back of support from parent companies via corporate funding and support”
So the current climate very much plays into the hands of the bigger
players, and the bigger player you are the more scope you have for
raising capital and getting hold of finance?
Yes, I think that large corporates would like to see projects operate on a standalone basis but the commercial reality is that direct support is more often than not required for projects emerging in new sectors. Large corporations prefer that the funding isn’t tapped from the company's own funding lines.”
Why do you believe investors are getting interested in the bio-fuels
markets, what is there in the market that is attracting investors?
Well, I think that comes down to yield. Where the transaction has been properly structured, where you have got high quality sponsors, where the technical and commercial risks are being wrapped, there is not only interest from a diversification of portfolio perspective but there’s also a pickup in yield.
I think the key risks for investors are the technical, the feedstock and the construction of plant risks. Once the construction and technical aspects have been covered and you’ve got sight of a transaction which is operating then it will step down in terms of risk and will be cash yielding. At this point the wider investment community will be interested and the
original investors will be in a position to assess how to value extract and optimise their original investment”
How can companies manage the technology risk specifically on a bio
based project?
This is all about bringing in experience and entities with a strong track record when it comes to delivery. We get attracted to certain transactions because of the quality of the sponsors. Remember banks alone are not equipped to fully assess all the technology risks associated with bio-
fuels projects but we are good at assessing large corporates who are willing to take the technology risk. If there is a technology risk on a particular project for example, having unknown and unproven sponsors is not going to be as strong as, for example, BP or Shell.
Because we know that those large organisations will find and dedicate resources as the project is developing.”
Read more at page 15-16:
https://www.filepicker.io/api/file/9jBEGvebTiyZXW4dmO7w
