BUSINESS DAY TV: ‘The clean energy space delivers superior returns’
AEP Energy Africa, Edwin Kikonyogo discusses its listing on the ALTX and plans to make acquisitions in liquified natural gas
Edwin Kikonyogo is the CEO of AEP Energy Africa.
BUSINESS DAY TV: AEP Energy Africa became the second special purpose acquisition company (SPAC) to list on the ALTX, raising R52m in its journey to the JSE. Its billing itself as the exchange’s black empowered clean energy group and it will be looking for acquisitions specifically in the liquified natural gas space. Joining me with more is CEO Edwin Kikonyogo.
Edwin … so you raised R52m in your pre-listing offer. Is that the extent of the capital that you have available for acquisitions?
EDWIN KIKONYOGO: No. We raised R52m to address an issue that came up during our roadshow which is an issue relating to cash drag where investors in this market are a little reticent to park capital, cash with a SPAC that has a 24-month period to spend it.
So we decided to reduce the offer and focus on viable acquisitions. But also go back because we were encouraged by investors, go back to those investors and look to migrate the listing to the main board where some investors don’t have a mandate for ALTX.
BDTV: Are SPACs a tough sell for investors, do they understand them or do they just not trust them?
EK: They understand them. Most of them have performed well. The issue is the time taken by many of them to viable acquisitions, 24-months. So asset managers are essentially asked to park cash, which they can manage themselves, with a third party without a defined or clear view as to what is going to be done with that cash.
BDTV: Back in April, AEPEA (Association of Energy Professionals Eastern Africa) was talking about raising R500m. Do you think, once you have got that viable acquisition and you do migrate to the main board, that this a viable target?
EK: The SPAC space puts you into a bit of a conundrum, where you are limited in terms of the amount of information with respect to each of your acquisitions that you can share with investors. So they are sitting in a position where they’re not able to get the full disclosure that they may want to make an investment decision. Now that we’re listed, we can be much more open in the pipeline of opportunities that we have and we believe that our space, the clean energy space and particularly the emphasis on energy as opposed to electricity delivers superior returns than are available in alternative energy markets such as renewables that deliver just electricity.
BDTV: You mentioned the two-year time limit that you have as a SPAC to make that first viable acquisition. With your pipeline, how soon do you think you will be making an acquisition?
EK: We are hoping to achieve both an acquisition and a migration to the main board within six months. It’s a little tight so realistically it is probably within 12 months and if I take the space between the two and, say, nine months, I would say that that’s a very achievable target for us.
BDTV: One of your backers is the Public Investment Corporation (PIC) and that’s what they would like to see, a migration to the main board. And are they willing to invest more once you’ve done that?
EK: Yes, absolutely. They have given us an irrevocable commitment that they will take up to 49% of any secondary raise that we do, subject to an initial cap of R200m as a SPAC and thereafter their appetite will be based on our performance. So we hope that we can deliver the type of performance that will make them a long-term and significant investor beyond R200m.
BDTV: What’s the scope for liquified natural gas in SA, because when you chat to many of the renewable players they see that as potentially base load would be needed to supplement solar and wind energy perhaps, in a hybrid model, but the whole programme seems to be up in the air at the moment because of delays by Eskom and the government.
EK: Yes, the demand for SA is there. Currently, the demand is restricted by the gas that is available in the market through a single pipeline from Mozambique. The pipeline network in SA is largely constrained to Gauteng and into KwaZulu-Natal. So the Eastern Cape, Western Cape, Northern Cape, Northern Province and other parts of SA are excluded from participating in natural gas via pipeline. Some are beginning to access gas through compressed natural gas so there is huge scope for liquified natural gas into SA. And, in fact, that scope is growing by the day.
It is likely that natural gas will become a favoured fuel in SA simply because SA is so proximate to massive gas reserves that have been discovered, and liquefaction plants that are going to be built to monetise that gas in Mozambique and in Tanzania. So natural gas is in liquefied form, we believe, is part of SA’s future.
BDTV: How do you overcome that single pipeline though?
EK: Liquefied natural gas is essentially taking a molecule of gas and reducing the volume by 600 times, so you’re shrinking a cubic metre of gas by 600 times, meaning that you’re getting the same energy density in a lower volume and you can transport that energy vast distances. African liquefied natural gas today moves to South East Asia, China, Korea, Japan, has historically moved to the US and has historically serviced Europe. So it lends itself much like diesel and heavy fuel oil and other liquid fossil fuels to transportation over long distances. That is the bridge by which you can move energy from point A to point B.
BDTV: And, of course, you’re not limiting yourself to SA, you are a pan-African company. What sort of returns would you hope to deliver to shareholders once you have made that acquisition, once you are going full throttle?
EK: We’re targeting, within our own projects IRRs (internal rates of return) of plus 25%, which are almost double what some of the renewables projects are showing.
BDTV: I’m sure we’ll be chatting again in the future when you make that acquisition.