WPAC Report Closed End Funds These alternatives to bank financing are an innovative way to finance pellet plants and other bioenergy projects. By Gordon Murray ow that you have a long-term off-take agreement and a secure fibre supply, all that remains is to build your plant. And that should be easy if you can just raise enough money, yet arranging sufficient financing can be difficult. Traditional banks won’t lend for bio-energy projects because they don’t under-stand them, are averse to risk and won’t finance startups. They want to see at least three years’ worth of profitable financial statements before lending and often re-quire project developers to put in as much of their own cash as they want to borrow N from the bank. They also usually require more security than the assets being fi-nanced, meaning that the borrower has to sign a personal guarantee and put up his/ her home for security. an alternative tO Financing Thanks to WPAC associate member Ul-rich Hainzl KG a new alternative to bank financing is now available: the closed end fund (or CEF). A CEF is like a mutual fund where the capital of hundreds or thousands of inves-tors is pooled and invested in assets. But un-like a mutual fund, for each CEF , the amount of capital raised is limited to the amount re-quired for each project, and the term of each project is finite. Once the capital has been raised, the fund is closed for the term of the project. The return on investment is derived from profits earned by the project plus the proceeds received when the project is sold at the end of the CEF’s term. CEFs are used for investing in real estate, shipping, aircraft and many other related market segments, and a pellet plant would be an ideal project for CEF financing. hbi gmbh “Canadian bioenergy project developers should seriously consider CEFs when deciding how to finance their projects.” Founded 15 years ago and based in Ham-burg, Germany, HBI GmbH is a financial services company and CEF specialist which has developed projects, mediated in negotiations and invested several bil-lion euros for its clients. Yvonne Büttner, one of the managing directors of HBI, said that the company primarily acts as a designing house for private and public placements. “We pro-vide project developers and product pro-viders with customized concepts for the realization of large investment projects, which we then accompany from the first thoughts at the “green table,” on to their implementation, to their operation and fi-nally to the fund’s liquidation.” HBI GmbH’s current ambition is to de-sign funds to be invested in Canadian re-newable energy projects and this presents a serious opportunity for Canadian pellet producers and other bioenergy-related project developers. liFe cycle OF a Fund Generally, there are six steps in the life cycle of a CEF: A project developer prepares a convinc-ing business plan demonstrating attractive 26 Canadian BIOMASS JANUARY/FEBRUARY 2012
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