International Biomass Conference Malaysia 2016

12 Oct 2016

‘Green Financing Landscape & Business Modeling’

Very often we hear many green promoters lament that it is an uphill task to secure financing for green business.  In Malaysia, the commonly known financiers are banks and venture capital companies. However, emerging financing models include Angel Investors, Equity Crowd Funding, Sukuk/Green Bond as well as IPO.

“It is important to know the modus operandi of the financiers”, said Malaysia Biomass Industries Confederation (MBIC) President, Dato’ Leong Kin Mun at the International Biomass Conference Malaysia 2016 held in Kuala Lumpur recently. This Conference was organized by Malaysian Investment Development Authority (MIDA), National Innovation Agency Malaysia (AIM) and Malaysia External Trade Development Corporation (MATRADE) with the theme “Connecting to the Global Biomass Ecosystem”. Leong was one of the panelists at the Financial Landscape & Business Modeling: Green Financing – Investors Perspective and Funding Development Trends.

Many best practices and customised models can be worked out for viable biomass projects, says Leong.

      Prior to approaching any financiers, it is extremely crucial for the business promoter to prepare the necessary financial indicators to meet the expectation of various financiers. Leong has outlined relevant financial indicators to include in the business plan to convince potential financiers either banker or equity investors.

      These financial indicators include Payback Period, Break-Even Analysis, IRR vs Interest Rate, Predictable Cash Flow Return based on simulation, Sensitivity Analysis on different variables and Scenario Analysis based on pessimistic and realistic situation. These analysis would give the financier an idea what are their bottomline financially in the context of risk management. One can also include a possible optimistic (bonus situation) in the scenario analysis to show the other flip-side of the coin.

      Compound Annual Growth Rate (CAGR) is another indicator which shows the potential business growth in terms of dollar and cents, as well as Peers Comparison in term of leadership of market share position and overall market size. Not forgotting greenhouse gas emission (GHG) reduction is a very significant indicator in the context of tapping green financing subsidized interest rate locally as well as meeting appetite of global green fund.

      Additionally, the other relevant evaluation that address explicitly in the fund-raising plan of biomass projects includes security of feedstock, security of technology in term of project delivery and biomass conversion, management profile of the promoter highlighting their prior track record and experience, security of systems (warranty from equipment vendor), security of market (buy-back agreement or off-take agreement from the buyer).

      Leong also shared how to increase commercial viability of biomass projects; the biomass project promoter should possess right conversion proven technologies as technology is always deemed as game-changer to address mass business demand, industrial pollution issues as well as value (wealth) creation, very good IRR more than 15% and favourable framework and enabling environment provided by the Government.

      The highlights of his presentation are Global Trends in Green Financing such as the corporate bond by the European Renewable Energy Developer (Etrion Corporation) which operates utility-scale solar power generation plants has raised EURO 80 million with 8% coupon rate. Similarly, Malaysia has also established the financing framework using Sukuk to fund renewable energy project under the principle of sustainable & responsible investment (SRI).

      Another best example is the Malaysian bioplastics technology provider which was funded by the China Investor with RMB1.2 billion in China. A local biomass project with financing more than RM100 million for a 10MW Biomass Power Plant by Maybank Islamic Bank with Corporate Guarantee furnished by a foreign PLC is among other proven financing case. He also mentioned about Equity Crowd Funding (ECF) for a Malaysian biogas SME which raised RM1 million from various retail investors based on fix-income approach and IPO’s theme. Other example is a Malaysian biomass SME i.e. Heng Huat Resources Group Bhd successfully raised fund through IPO in the ACE market with RM36.2 million 3 years profit after tax (PAT).

      Many best practices and customised models can be worked out for viable biomass projects, says Leong before ending his speech. Aside from Leong, the other panelists included the Senior Business Development Manager of Novozymes, Shanthan Selvakumar and Global Director PLA and Bioplastics of Carbion-Purac Asia Pacific, Stefan Barot.

With this financing intelligence, biomass entrepreneur will have better preparations to address various fund-raising issues and excel themselves in green financing. 

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