Macquarie and Societe Generale Finance EuroSite Power Projects
EuroSite Power (EUSP – $0.95), has reached an agreement in principle with Macquarie Energy Leasing and Societe Generale Equipment Finance to provide project finance for future projects. These agreements would allow the Company to target more and larger customers.
In the past, EuroSite Power, which installs, owns, operates and maintains natural gas fueled Combined Heat and Power (CHP) units, chillers, and heat pumps, had to rely on equity financing to fund the installation of its systems. Now it can count on the financial backing of Macquarie and Societe Generale.
Macquarie Group is a global financial services provider with offices in 27 countries. Since 2002, Macquarie Energy Leasing, which is part of Macquarie Group, has been assisting businesses by providing specialized and tailored leasing and finance products in the energy asset space.
Societe Generale Equipment Finance (SGEF) is the international equipment and vendor finance specialist of Societe Generale group. SGEF is a worldwide leading player and a key partner for manufacturers and vendors in Europe, Africa, Asia and Americas. Societe Generale Equipment Finance manages more than EUR 22.2 billion end managed assets. With 3,100 people across 35 countries, SGEF serves more than 230,000 customers thanks to its sound industry knowledge in the Transportation, Industrial Equipment and High-Tech markets.
Customers Won’t Notice Difference
Up until now, the cost to install a CHP unit, roughly between $200,000 and $300,000, was entirely funded by EuroSite Power. The Company also paid for the gas to run the CHP system and its maintenance. The customer only had to pay for the generated electricity, heat and cooling over a set period of time – usually 15 years. In addition, the cost of the generated energy was guaranteed to be cheaper than the displaced energy from the grid.
Assuming a typical structure to other project financing arrangements, one of the two major financial institutions will first sign a project loan agreement. Similar to every financing, the interest rate will be influenced by the customer’s current level of borrowings, the confidence of the lender in the customer, etc.
Next, EuroSite Power would finance the entire CHP system and the installation on the customer’s site. However, as soon as the unit is up and running, the lender would refund EuroSite Power all costs associated with the purchase and the installation of the unit. This is obviously a major advantage for the Company.
Similar to the past, EuroSite would continue to operate and maintain the CHP unit throughout the typical 15 year contract period.
Paul Hamblyn, Managing Director of EuroSite Power commented, “These financing arrangements ensure that going forward, capital will be constrained only by project ROI, not by availability of funds. Any project that meets our required return hurdles, regardless of size and scope, may be pursued.”
Uplisting to OTCQX
In other news, EuroSite Power will shortly apply to list on the OTCQX tier, the highest segment of the OTC platform.
Commenting on the potential uplisting, Dr. Elias Samaras, EuroSite Power’s Chief Executive Officer commented, “The transfer of EuroSite Power’s listing to OTCQX will be a validation of our efforts and sends a strong signal to the investment community that we are committed to building a stable and liquid offering for shareholders.”
The OTC platform, operated by OTC Markets Group, is the world’s largest electronic marketplace for OTC-traded equities. It lists more than 10,000 securities trading over $107 billion in dollar value in the first half of 2015. The OTC listed companies are divided in three tiers:
- The OTCQX is the most prestigious of the three tiers and is reserved for high quality companies. The OTCQX International section lists many highly respected companies like Allianz, Air France KLM, Adidas Group;
- The OTCQB is the middle tier and designates companies that have operating businesses and provide substantial disclosure to the marketplace. For example, OTCQB companies must provide audited financials and certain disclosures to OTC Markets Group. However, there are no financial or qualitative standards to be in this tier;
- Finally, OTC Pink is the speculative trading platform that has no financial standards or reporting requirements. OTC Pink companies decide for themselves what level of information they provide to investors and may have current, limited or no public disclosure.
The decision of Macquarie and Societe Generale to fully support EuroSite Power’s operations is a strong validation of the Company’s business model. Once finalized we no longer foresee a need for the Company to use private placements to finance equipment purchases.
It also means the Company can now handle much larger projects. either in system size (kW) or in terms of the number of sites.
Thanks to the finance arrangements with these two major banking groups, EuroSite Power has accomplished the second of four pillars of growth that it had set out last month. The execution of those four pillars will increase both sales and margins.
As of December 1st EuroSite Power has its own maintenance service team, which will handle preventive maintenance of the fleet, together with any fixes of breakdowns. Now the agreements with the two financial groups aremoving forward.
In addition, according to a recent interview with Elias Samaras and Paul Hamblyn, the natural gas supply agreement with Corona Energy is close to being finalized. Moreover, we should start to see the first results of the cooperation with a strategic partner that will help expand EuroSite Power into mainland Europe.
Although the stock has doubled since we first featured it, we feel there’s still plenty of room for growth. Our current price target is $2.51.
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