Tchenguiz – green means bucks

Property billionaire Vincent Tchenguiz wants to make his next fortune through environmental businesses. If he can help the environment while doing it, then so much the better. But actually he doesn’t give a green fig about the global ecology. All he is interested in is eco-policy, eco-publicity and eco-profits.

Under his plans, the environment is a product like any other that he can commodify to trade and sell to corporates and governments around the world. If all goes well, Tchenguiz says the business could easily turn into a multibillion-pound venture that is at least as lucrative as property.

His company, Consensus spends more than £20m every month on its environmental portfolio, which spans more than 220 companies, joint ventures and funds. It covers everything from emerging green technologies to the planting of trees.

‘This is not for charity,’ he says. ‘The effects are positive for the environment, but I am running a business.

‘The environment can be leveraged in the same way as real estate. Solar parks and solar roof tops, wind farms and forestry can be sold and leased back in the same way and carbon can be traded as easily - if not more easily - as any building. It is just that the market for such assets is not yet fully developed.’

This is something Vincent plans to change. The Consensus business model follows the process of developing green technologies from start to finish (see diagram, opposite).

This begins with investment in universities, such as Quebec’s McGill and Imperial Innovations, the intellectual property arm spun out from London’s Imperial College, that are developing green technologies.

It then progresses through initial funding, product development and product expansion to infrastructure and, finally, to the financial services industry, which develops products such as the green credit card and carbon swaps.

Consensus has, for example, agreed a partnership with Imperial Innovations and has several clean technology and climate change management projects at an early stage, which require further financing to facilitate growth.

Similar tie-ups and investments are being advanced with other universities, such as Princeton and Columbia in the US and Oxford in the UK. Consensus provides funding for these universities to develop technologies and then helps take them to market.

Tchenguiz has stakes in specialist environmental investment companies, such as Chrysalix Energy and Expansion Capital, which identify, finance and develop profitable growth businesses. This makes up the second stage of the product development.

He also has stakes in other nascent technology companies - for instance, UK-based global producer of biodiesel D1 Oils and hydro-energy firms Econergy and Dynamotive, which covert wood and forest waste into a new fuel called BioOil. Another area of investment is in companies specialising in water desalination processes.

Tchenguiz says: ‘The Consensus environmental portfolio is a business in its own right, but it also feeds into the rest of the business. It invests in early stage technology and then takes it through to its conclusion.

‘Our clean technology proposals have a long way to go. For instance, our work with Imperial Innovations, in which we have a significant stake, can be translated into our residential model where we manage 60,000 residential properties. The technology can go straight into the UK housebuilders and their housing stock.’

Tchenguiz’s recent £500m acquisition of Peverel will give him access to a further 50,000 freeholds and 120,000 properties under management.

Tchenguiz envisages converging his real estate holdings in commercial and residential with the environmental aspect of the business.

‘We’ve done our first solar deal in Germany, which gives us access to a 90,000 sq ft rooftop of an industrial unit,’ he explains. ‘And another deal with a developer has given us potential access to another 7,000 rooftops. We’ll use our other parts of the business to leverage relationships with other developers to get more access to roofs.’

The risks of investing still exist, but rather than coming up against the whims of the property market, there are more natural obstacles.

‘If there is no daylight then there is no rent,’ Tchenguiz says. ‘The investment will have all the characteristics of a building sale and leaseback. The risks are still basically the same as in property.’

FORESTRY COMMISSIONING

Reforestation also offers an opportunity to create a marketable product. The carbon absorbed by the trees equates to tradeable carbon credits. On average, a tree will absorb 230 kg of carbon dioxide emissions over 30 years.

‘Quite simply,’ says Tchenguiz, ‘the input is cash from us to plant the forests and the output is carbon credits from the trees, which we can then trade. It involves a lot of land.’

Carbon credits are tradeable instruments with a transparent price, and Tchenguiz is one of several financial investors buying them purely for trading purposes. But he is one of only a handful who are generating credits.

Tchenguiz plants a forest so that a company does not have to and it pays him for the service.

Consensus has stakes in forestation companies in countries such as Uganda and Tanzania. Polluting companies ‘offset’ their gas emissions by supporting these projects and, in effect, buy carbon credits. They could potentially pay handsomely for this over a long period of time.

Tchenguiz says: ‘A forest could have a very long life and so companies could sign up to buy carbon offsets from us for 30 years. Effectively, we can securitise the carbon, allowing companies and governments to buy into it to offset their emissions on a long-term basis.’

This also ties in with Tchenguiz’s plans to create a link between his environmental interests and defence manufacturers called C02 - Offset to Ozone.

Foreign defence and aerospace companies are often required to invest in the country to which they have sold arms or planes in order to offset trade imbalances. Many countries demand that these investments, which range from 10% of the purchase price to more than 100%, go towards infrastructure or environmental projects.

Offset liabilities for defence companies are estimated to be worth $177bn (£90.7bn). Around $16bn of new, defence-related offset liabilities are created each year as more countries instigate such policies.

Tchenguiz will co-invest alongside defence companies in new offset projects, as well as providing access to his existing joint ventures and technology pipeline (see diagram, right).

An announcement is expected this week regarding the first joint venture to exploit this offsetting model. Defence company EADS is to unveil an initial investment into a fund, backed by Tchenguiz, which will invest in technology in Europe and will be able to be used to offset company liabilities. The fund, which has a target size of EUR200m (£135.6m), has raised EUR34m (£23.1m).

It is Tchenguiz’s second deal with an aerospace and defence company.

Consensus signed a $40m (£20.2m) agreement with United Technologies earlier in the year.

He believes it ’shows how the offset model is applicable in practice’.

Another deal, which will result in a defence contractor providing cheap capital to buy and leaseback a £300m building in the Middle East, is expected to complete this month.

In return for the cheaper equity, the contractor will be able to offset its liabilities under a plan being led by an undisclosed Middle Eastern country’s government.

‘This is the beginning of linking the offsetting business with the property side of our interests,’ Tchenguiz says.

MAKING A TON

Tchenguiz is also close to reaching a decision about investing in the World Bank’s green technology fund, which could yield a large amount of carbon credits in return.

‘For our investment, we would get paid in carbon,’ he explains. ‘This is being traded at $4 a ton, but we think it could one day be traded at $25 a tonne. It’s a big test of our financial skills, (but) effectively it is looking at it like property.’

Tchenguiz’s stakes in international funds, which aim to invest in clean energy technology, are another side to the business and many of them are held partnerships with national governments. The governments then invest in various environmental schemes.

Among his holdings, Tchenguiz has closed a $250m (£126.4m) tie-up with United Arab Emirates and is closing a $150m (£75.8m) fund with South Africa. He has also embarked on a joint venture with National Industries Group/Noor Financial Investment Company in Kuwait.

In November last year, he launched the $250m (£126.4m) Masdar clean technology fund in partnership with the state-owned Abu Dhabi Future Energy Company and Credit Suisse.

He also has interests in other environmental funds in China through the China Harvest Fund and in Europe, Asia, Canada and the US.

‘We are investing across the whole spectrum of the environment,’ he says.

‘We are taking strategic stakes in companies that make environmental projects, which then generate a cashflow returns through carbon and trade offsets.’

Land remediation is also being explored.

It is at an early stage, but Tchenguiz is talking to companies that are traditionally heavy polluters. ‘We want to work with them and tie it in with our housebuilder model,’ he says. ‘So we’ll get paid for taking the land and work on development with our other strategic partners.’

Tchenguiz’s recent purchase of a A$150m (£62.5m) stake in Australia’s Challenger Infrastructure Fund offers the opportunity to roll out the technologies being created and developed into new housing stock.

Challenger controls extensive amounts of gas and electricity infrastructure to UK homes in what is referred to as the ‘last mile’ between the utility providers’ network and houses. It has access to half of the UK’s new-build homes, which, Tchenguiz says, provides a leverage platform for his investments in companies such as Macropolitan and Fastnet Broadband, which offer broadband, wireless 3G technology company Quintel and telecoms firm BNS Telecoms.

On the back of this, he can also leverage green technologies and services, particularly in financial services and corporate solutions.

For example, County Estate Management, the residential property management arm of Consensus, has this month launched Green Vision - a system to promote green practices in existing residential properties through carbon footprint assessments and green audits.

Tchenguiz hopes this will help to resolve the problem that all green legislation is aimed at new build rather than at improving existing building stock.

As part of these plans Consensus will leverage established relationships with housebuilders and introduce green building techniques.

A GREEN FRONTIER

Pioneering environmental audits of office buildings are also on the agenda.

These are aimed at saving occupiers and landlords money, as well as cutting carbon dioxide emissions.

Corporate consultancy Reventure, a joint venture with consultant Edengene, is in discussions with corporate clients about how to improve their green credentials.

Tchenguiz is keen to stress that all his businesses link together, from the carbon and trade offsets to the simple application of an energy-saving device in a home.

‘If we get this business right, it will be huge,’ he says. ‘It all converges at this level.

And best of all, we’re directly in line with government initiatives.’

Tchenguiz rarely stumbles as he ranges through the different parts of his property and environmental portfolio, despite the complexity and extent of many of the investments.

It is not easy to turn the environment into a commodity but Tchenguiz is confident that there is money to be made.