Inside a biofuel mega-deal: BlackRock, a Chinese university and many tons of waste

Montreal-based Enerkem has just raised C$280m to build facilities in the US and Europe. We zoom in on the transaction’s structure and what it says about institutional appetite for advanced biofuels.

Last Friday, Canada’s Enerkem and a clutch of industrial groups announced plans to build a €200 million waste-to-chemicals facility in Rotterdam.

The biofuel specialist described the project as the first of its kind in Europe that converts non-recyclable waste into raw materials. But it is also one of the first ventures the company is looking to fund through the C$280 million ($223 million; €180 million) pot of cash it raised earlier this month. It follows the company’s C$125 million tie-up with Sinobioway, a group affiliated with Beijing university, to build more than 100 biofuel plants in China.

What Enerkem does is rather distinct from conventional biofuels, produced from edible crops. Essentially, the company makes ethanol and methanol from municipal waste, using a technology it says is the fruit of 10 years of testing and scaling-up. Enerkem has raised about C$750 million since kicking off the effort about 15 years ago, a spokesman for the group told Agri Investor.

The way it achieved that has not been conventional either. The company’s longstanding investors include venture capitalists (Rho Ventures, Braemar Energy Ventures, Westly Group and Cycle Capital), public entities and domestic pensions (Waste Management of Canada, Investissement Québec, Fonds de solidarité FTQ, Fondaction) and the National Bank of Canada.

All these have so far backed the company through a mix of equity, debt, government grants and repayable loans.

But its latest fundraising effort took a different turn. First, it involved two large overseas investors: US private equity giant BlackRock and Sinobioway. Second, the deal was structured in a hybrid fashion. While BackRock invested through convertible bonds, Sinobioway pledged more than C$125 million in equity to future licenses, equipment manufacturing and sales, as well as the Chinese joint venture mentioned above.

“Proceeds will help us accelerate our growth and further expand project development and implementation,” noted the company spokesman, adding that further facilities are also planned in North America. Enerkem says it built the first commercial facility of its kind when its methanol-ethanol production plant launched in 2015 in Edmonton, Alberta.

The International Energy Agency predicts that biofuels will account for 27 percent of total transport fuel by 2050. Regulatory evolution today suggests second-generation biofuels will account for a growing share of that lot, with crop-based biofuels increasingly capped by governments citing food security reasons.