Maple Energy: Ethical ethanol?
Maple Energy has signed a $148.5 million debt financing for a $254 million ethanol project on the northern coast of Peru. Funding on the loan is still dependent on the sponsor rounding out its equity requirement for the project, but brings near to an end a multi-year effort to close a project with an unusual financial and technical risk profile.
The financing consists of $140 million in 12.5-year construction and term debt and an $8.5 million VAT facility. The senior debt breaks down into a $65 million loan from the Corporacion Andina de Fomento (CAF), a $25 million loan from FMO, a $25 million loan from the Inter-American Development Bank and a $25 million loan from Peruvian lender Interbank.
Maple is listed on Londons AIM and the Bolsa Valores de Lima in Peru, and is primarily known as an independent oil and gas producer and occasional power developer. It has been developing the Piura ethanol project since before its July 2007 listing, an unusual sideline for an oil and gas independent.
It had to deal with a near-paradox: to raise financing for an ethanol project from multilateral and bilateral lenders it had to grow its fuel in such an inhospitable environment that it could not be accused of taking land out of food production. To grow feedstock in such an environment it had to put together a technically complex system. To build this system cheaply it had to dispense with a fixed-price turnkey engineering, procurement and construction contract.
The banks had to make sure that the project did not breach the International Finance Corporations performance standards or the IDBs biofuels guidelines. Multilateral lenders are under considerable pressure not to finance ethanol projects that take land out of food cultivation to grow biofuels crops. Ideally projects would not displace any native vegetation, either. The site of Maples project is barren, though near-permanently sunny, and favourable night-time temperatures.
The project involves cultivating up to 7,800 hectares of sugarcane in this dry, yet sunny, part of northern Peru, irrigating it using a drip-feed system, processing the sugarcane and distilling it into ethanol, and using a 37MW bagasse-fired power plant to run the distillation unit and pump water from a nearby river for use in the irrigation system. Roughly 20MW of the generation plants capacity will be required for this parasitic load, and the remainder will be dispatched into the grid.
CAF and FMO have been involved with the project for several years, while the IDB joined in September 2009, and Interbank more recently. The biggest obstacle to the development banks participation was not the volatility inherent in the biofuels business. The plant has lined up a well-rated offtaker (signing an agreement is a condition precedent to funding), and the plant is expected to benefit from European demand connected with its blending mandate.
The financing is unusual for its inclusion of upside interest payments on the senior debt, essentially a mechanism by which the three development banks can share in the profit earned by the project but at the same time hold a senior secured security interest. The Interbank loan is priced at a fixed 10.75%, while the CAF, FMO and IDB loans are priced at 600bp over Libor.
The equity upside allows the development banks to earn a similar return to the local lender on their loans without placing an undue scheduled interest burden on the project. The lenders will first sweep 30% of the borrowers cash flow after debt service towards debt repayment, and then receive another 6.5% in upside interest. The IDB has dedicated its upside interest proceeds towards nearby community development projects.
Maple, which is listed in London and Lima, owns oil and gas and power properties, and will guarantee the loan until project completion. Its guarantee will fall away once the project reaches completion, is within defined covenants, and reaches development milestones. The sponsor is also putting up a $12.5 million letter of credit to cover cost overruns, which would be cancelled at completion.
It is contributing $105 million in equity to the project, of which $85 million has already spent. Funding the remaining $20 million is a condition precedent to drawdown on the debt. On 29 March it said that it proposed to issue another $40 million in equity, underwritten by Jefferies and Mirabaud Securities, providing it gained shareholder approval at an extraordinary shareholder meeting on 22 April. This meeting was subsequently adjourned, first to 4 May, and now to 24 May.
The $254 million project cost breaks down into $93.6 million in agricultural expenditures, $88.5 million in processing, distillation, power generation and transmission equipment costs, $28.9 million in administrative expenses, mostly fees, a contingency of $12 million, a debt service reserve of $14.6 million, $8.4 million in capitalised interest, and $8 million in VAT. The sponsors are not using a fixed-price turnkey construction contract, because these are difficult to obtain for ethanol projects, and would increase the cost of the project by up to 20%.
The banks had to make sure that the project did not breach the International Finance Corporations performance standards or the IDBs biofuels guidelines. The project needed to convince lenders it was not using land that could be used for food production, and met labour and social standards.
Maple hopes to be one of the lowest-cost producers globally by benefiting from a year-round growing season, a dry climate that does not impede harvesting, and a limited need for hydrocarbons in the distillation process. If it succeeds it may revitalise ethanol as an asset class with green credentials and solid project economics, both of which have been in short supply recently. Producers in Africa, for instance, may be able, if they have access to sufficient capital and expertise, to replicate the venture.
Maple Ethanol and Maple Biocombustibles
Status: Signed March 2010, waiting on closing of final equity
Size: $254 million
Location: Piura Region, north-west coast of Peru
Description: 7,800-hectare sugarcane plantation, 35 million gallons-per-year ethanol plant, and 37MW biomass-fired power plant
Sponsor: Maple Energy
Equity: $105 million
Debt: $148.5 million
Arrangers: FMO, CAF, IDB, Interbank
Tenor: 12.5 years
Sponsor legal advisers: Vinson & Elkins (international) Rodrigo, Elias & Medrano (local)
The financing consists of $140 million in 12.5-year construction and term debt and an $8.5 million VAT facility. The senior debt breaks down into a $65 million loan from the Corporacion Andina de Fomento (CAF), a $25 million loan from FMO, a $25 million loan from the Inter-American Development Bank and a $25 million loan from Peruvian lender Interbank.
Maple is listed on Londons AIM and the Bolsa Valores de Lima in Peru, and is primarily known as an independent oil and gas producer and occasional power developer. It has been developing the Piura ethanol project since before its July 2007 listing, an unusual sideline for an oil and gas independent.
It had to deal with a near-paradox: to raise financing for an ethanol project from multilateral and bilateral lenders it had to grow its fuel in such an inhospitable environment that it could not be accused of taking land out of food production. To grow feedstock in such an environment it had to put together a technically complex system. To build this system cheaply it had to dispense with a fixed-price turnkey engineering, procurement and construction contract.
The banks had to make sure that the project did not breach the International Finance Corporations performance standards or the IDBs biofuels guidelines. Multilateral lenders are under considerable pressure not to finance ethanol projects that take land out of food cultivation to grow biofuels crops. Ideally projects would not displace any native vegetation, either. The site of Maples project is barren, though near-permanently sunny, and favourable night-time temperatures.
The project involves cultivating up to 7,800 hectares of sugarcane in this dry, yet sunny, part of northern Peru, irrigating it using a drip-feed system, processing the sugarcane and distilling it into ethanol, and using a 37MW bagasse-fired power plant to run the distillation unit and pump water from a nearby river for use in the irrigation system. Roughly 20MW of the generation plants capacity will be required for this parasitic load, and the remainder will be dispatched into the grid.
CAF and FMO have been involved with the project for several years, while the IDB joined in September 2009, and Interbank more recently. The biggest obstacle to the development banks participation was not the volatility inherent in the biofuels business. The plant has lined up a well-rated offtaker (signing an agreement is a condition precedent to funding), and the plant is expected to benefit from European demand connected with its blending mandate.
The financing is unusual for its inclusion of upside interest payments on the senior debt, essentially a mechanism by which the three development banks can share in the profit earned by the project but at the same time hold a senior secured security interest. The Interbank loan is priced at a fixed 10.75%, while the CAF, FMO and IDB loans are priced at 600bp over Libor.
The equity upside allows the development banks to earn a similar return to the local lender on their loans without placing an undue scheduled interest burden on the project. The lenders will first sweep 30% of the borrowers cash flow after debt service towards debt repayment, and then receive another 6.5% in upside interest. The IDB has dedicated its upside interest proceeds towards nearby community development projects.
Maple, which is listed in London and Lima, owns oil and gas and power properties, and will guarantee the loan until project completion. Its guarantee will fall away once the project reaches completion, is within defined covenants, and reaches development milestones. The sponsor is also putting up a $12.5 million letter of credit to cover cost overruns, which would be cancelled at completion.
It is contributing $105 million in equity to the project, of which $85 million has already spent. Funding the remaining $20 million is a condition precedent to drawdown on the debt. On 29 March it said that it proposed to issue another $40 million in equity, underwritten by Jefferies and Mirabaud Securities, providing it gained shareholder approval at an extraordinary shareholder meeting on 22 April. This meeting was subsequently adjourned, first to 4 May, and now to 24 May.
The $254 million project cost breaks down into $93.6 million in agricultural expenditures, $88.5 million in processing, distillation, power generation and transmission equipment costs, $28.9 million in administrative expenses, mostly fees, a contingency of $12 million, a debt service reserve of $14.6 million, $8.4 million in capitalised interest, and $8 million in VAT. The sponsors are not using a fixed-price turnkey construction contract, because these are difficult to obtain for ethanol projects, and would increase the cost of the project by up to 20%.
The banks had to make sure that the project did not breach the International Finance Corporations performance standards or the IDBs biofuels guidelines. The project needed to convince lenders it was not using land that could be used for food production, and met labour and social standards.
Maple hopes to be one of the lowest-cost producers globally by benefiting from a year-round growing season, a dry climate that does not impede harvesting, and a limited need for hydrocarbons in the distillation process. If it succeeds it may revitalise ethanol as an asset class with green credentials and solid project economics, both of which have been in short supply recently. Producers in Africa, for instance, may be able, if they have access to sufficient capital and expertise, to replicate the venture.
Maple Ethanol and Maple Biocombustibles
Status: Signed March 2010, waiting on closing of final equity
Size: $254 million
Location: Piura Region, north-west coast of Peru
Description: 7,800-hectare sugarcane plantation, 35 million gallons-per-year ethanol plant, and 37MW biomass-fired power plant
Sponsor: Maple Energy
Equity: $105 million
Debt: $148.5 million
Arrangers: FMO, CAF, IDB, Interbank
Tenor: 12.5 years
Sponsor legal advisers: Vinson & Elkins (international) Rodrigo, Elias & Medrano (local)
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