Investor confidence in land-based recirculating aquaculture system technology has created a shift in the investor base supporting the sector, Atlantic Sapphire interim chief financial officer Karl Øystein Øyehaug told Agri Investor.
“As the [land-based] technology has been more proven, it has brought in a more international investor base and also it’s brought in more large, serious, long-only institutions and less of the typical family office, very free mandate type of investor,” said Øyehaug.
The University of Michigan, a returning investor, participated in a September private placement of $100 million into Atlantic Sapphire, making it the second largest stakeholder in the business after its founder Johan Emil Andreassen. University of Michigan made its placement through a co-investment with Summit, New Jersey headquartered special situations-focused Evermore Partners.
Øyehaug declined to identify other investors within the September private placement – which will be used to pay down debt and prepare for future expansion – but said it attracted a mixture of existing and new investors. He estimated roughly half of the company’s current investors are Norwegian and more than a quarter are American, with the remainder distributed among various European countries.
Atlantic Sapphire supplied its highly anticipated first salmon harvest to selected US retailers in mid-October, which were raised in its “Bluehouse” facility in Homestead, Florida. Øyehaug said that given the company’s estimates that it needs between $2 billion and $3 billion to reach its annual production targets of 220,000 metric tons by 2031, capital strategy is going to be important.
He explained that Atlantic Sapphire’s May listing on the Oslo Exchange was the culmination of a three-stage process that began in 2017, when the company pursued its first significant equity raise to support expansion of a pilot RAS in Denmark. The May listing marked the company’s official conversion from private to public and satisfied a prerequisite to become eligible for an investment from Norway’s government pension fund.
“You have other large international funds as well that also prefer true corporate governance requirements, compared to having only a light version of those rules. For that reason, it made sense to do the transfer,” he said, adding that surpassing $1 billion in total valuation is key for attracting institutions.
“With greater market cap, the company becomes investible to more investors. Even though they liked the story before, they do require liquidity in order to make the actual investment,” he said.
Because Norway is the world’s largest salmon producer, its financial system and institutions are among the world’s most knowledgeable about aquaculture. All farmed salmon begin their lives in land-based facilities, Øyehaug explained, so it was natural that regional family offices and investment arms of banks emerged early as the investors most comfortable with RAS producing full-grown fish when the company sought its first significant equity raise 2017.
That year, the company also listed on Norway’s over the counter (OTC) exchange, which Øyehaug described as a “less formal” and less expensive listing than the main exchange that nonetheless provided access to investors interested in early-stage aquaculture.
In addition to brokered equity raises in 2018 and 2019, Atlantic Sapphire took the intermediary step in 2018 of listing on the “semi-regulated” Merkur Market exchange before transferring the equity to the main Oslo Stock Exchange in May, Øyehaug said.
Strong earnings among salmon farmers benefitting from government-imposed limits on conventional supply in key markets, Øyehaug explained, have played a key role in feeding growing demand for aquaculture exposure among investors.
“The salmon farmers have never made more money than they have in the last five years,” he said. “If it weren’t for the underlying macro story in conventional sea-based salmon farming, interest would not have been as high. Now, people see how profit and valuation of sea-based players is exploding and look for new ways to solve the structural undersupply of salmon.”
Despite an estimated 100 greenfield salmon production facilities being proposed worldwide, Øyehaug predicted the majority will never be built. Given the technical difficulty of RAS aquaculture, he said, future production challenges could weigh on sentiment among all but the most seafood-experienced investors.
For example, high nitrogen levels led to the loss of 227,000 fish at Atlantic Sapphire’s Denmark demonstration facility in March. In July, vibrations from nearby construction stressed fish and necessitated an emergency harvest at the Bluehouse in Florida.
Øyehaug echoed a point made to Agri Investor by Pareto Securities partner Kristoffer Jordheim in December when he acknowledged that Atlantic Sapphire’s success or failure in its reaching production targets could help determine the pace of the land-based market’s overall development.
“The fact that banks, except in our case, are so reluctant to put in money here says a lot about the perceived risks that are still there,” he said. “It’s going to take a long time before this form of production is so proven that it is generally available and bankable. Therefore, access to capital is the biggest hurdle that other projects are currently facing.”
Though Maine, Nevada and Maryland have been suggested as potential sites for land-based facilities, Øyehaug highlighted that most investors have yet to fully grasp the pivotal importance of site selection.
“When you are doing this at the scale we are, there is an enormous amount of water you need both in and out of the system. Our clear experience is that if you don’t have access to a perfect water source – as the underground aquifers of Florida represent – then that will lead to much more unstable and difficult production,” he said.
“We are not going to build anywhere else than South Florida. We think that South Florida has the best naturally-given conditions in the world to do what we are doing.”