Not enough interest in flotation

Feb 19 2007 By Nigel Stirling, The Journal

Green energy producer Ensus is considering not going ahead with a Stock Exchange flotation after struggling to attract investor interest.

The company led by former ICI executive Alwyn Hughes said in November it planned to raise up to £90m from a listing on the Alternative Investment Market (AIM) to help build a 400m litres-a-year ethanol plant.

A spokesman said the company was now "looking at other [financing] options" after an investor road-show before Christmas for the first float by a ethanol company in the UK had failed to excite institutional investors as hoped.

It said in November a "binding" commitment from a financier for £150m of debt had been secured, although this was "subject to raising the equity required from institutional investors over the next three weeks."

The spokesman said: "At the moment Ensus is considering a number of different of fundraising options whether that be private [funds] or something else. There will be an announcement in the next two to three weeks."

The plant, which is subject to a 10-year deal with Royal Dutch Shell to buy all of the wheat-based fuel, would be the same size as originally announced although the funding delay meant its 2008 start-date would be pushed back, he said.

A source close to Ensus said the timing of the investor road-show in the run-up to Christmas had "seriously affected the ability to raise capital" as the City cleared out ahead of the festive break.

However, a downturn in investor sentiment against ethanol producers and the alternative energy industry in general since the second half of last year may have also played a part.

World wheat prices have jumped by £40 a tonne since September as drought in Australia has led to a shortage of global supply. A fall in the oil price has also forced down the price for alternative fuels and squeezed producers' margins. Matt Drinkwater, head of biofuels at New Energy Finance, a specialist provider of financial information to renewable energy investors, said a deterioration in investor sentiment in the US may have undermined the Ensus float.

He said: "Across the board people are having difficulty with the fact that oil prices have taken a tumble and wheat prices have risen, which is making a margins a lot less attractive. Since the late summer the share prices of two US ethanol IPOs have fallen 50% to 60% below their offer price. That may have influenced [Ensus's] decision to whether to try on AIM or not."

He added: "It is a lot cheaper to raise money on the public markets when it is a bull market which was more of the case last summer when these floats were being contemplated."

Plans for a number of wheat-ethanol projects for sites around the UK, including green energy company Vireol's plans for a 150,000 tonnes-a-year plant on Teesside, are expected to add 3.4m tonnes a year of additional demand for the crop.

Keith Davies, director of Glencore International AG, which has the exclusive contract to supply Ensus, said: "A plant of this magnitude will redefine the dynamics of the UK wheat market.

"The UK typically produces a surplus of around 1.5 to 2m tonnes of wheat.

"This one plant will substantially reduce the exportable surplus and, combined with other planned biofuel operations, puts the UK wheat supply and demand in balance."

However, traders say the North already has a wheat shortage, and Ensus will only add to that deficit, meaning upwards pressures on prices and increased freight costs.

Meanwhile, One NorthEast, which has promised a grant of nearly £2m to Ensus, should it locate its facility in the North-East, said yesterday no money had been paid to the company.

A spokesman said: "The grant is under the SFI scheme and the money will be paid out against agreed job creation and capital investment targets."