Russia’s invasion of Ukraine has caused prices of fossil fuels to shoot back up, negating the much-needed push towards renewable energy that is trying to close the cost gap between the two types of energy sources. However, the new management at Metis Energy is solidly sticking to its plans to transform its business into a green energy services provider.
Metis Energy, formerly known as Manhattan Resources until May 5, runs coal-fired power plants and provides ship chartering to haul coal in Indonesia. The company has also ventured into China’s property market, where it is now developing Ningbo Yinzhou Manhattan Tower, a mixed-use office and commercial project slated for completion in 2025.
However, business in these two areas has not been great for the company. Manhattan Resources, which has a December year-end, reported frequent full-year losses since FY2014, barring FY2018 and FY2020 when it was profitable. The company has also been on the SGX Watchlist since December 2018.
In its most recent FY2021, the company again recorded a loss of $1.7 million versus earnings of $8.07 million for FY2020.
The bulk of the red ink came from the $12.63 million impairment booked for its power plant business due to lower budgeted revenues and higher coal prices. Revenue was up 1% over the same period to $9.2 million.
Diversifying for a turnaround
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To reverse its fortunes, the company has appointed a couple of corporate heavyweights to its board and made new management appointments.
Tang Kin Fei, group president and CEO of Sembcorp Industries between 2005 and 2017, was appointed as chairman in January 2021, bringing with him years of experience running a conglomerate with a heavy emphasis on energy and utilities.
More recently on May 4, Tan Tong Hai, CEO of StarHub between 2013 and 2018, joined as a non-independent director. Besides holding directorships, both Tang and Tan hold sizeable stakes in the company. Tang has a deemed interest of 25 million shares, or 0.83%, while Tan holds 40 million shares.
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Part of the management changes at Metis Energy included bringing in former StarHub CEO Tan Tong Hai (left) as a non-independent director and former Sembcorp Industries group president Tang Kin Fei (right) as chairman.
On April 28, Metis Energy’s former CEO Low Yi Ngo also left this post although his father Low Tuck Kwong remains the controlling shareholder with a stake of just over 80%.
A key plank of Metis Energy’s move into green energy is the $4.8 million acquisition of Athena Energy Holdings last October, paid for via $4.3 million in cash and over 14 million new shares at 3.9 cents each, representing 0.47% of Metis Energy’s enlarged share capital.
Athena develops, owns and operates renewable energy assets in Asia and Australia and the name change to Metis Energy reflects the new direction in renewable energy.
The acquisition of Athena has also brought its founder and CEO Alan Yau into the fold of Metis Energy, where he now holds the key executive role of group general manager. Yau was previously CEO of Sembcorp China Holding, where he managed the conglomerate’s power plant and water treatment assets.
From Yau’s perspective, renewable energy is the way to go. “There’s no turning back because the entire world is going into renewable energy to sustain economic growth. The fossil fuels and coal-fired power plants will not be a sustainable solution,” says Yau in an interview with The Edge Singapore.
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He believes that the “stars are aligned” for Metis Energy to transform. For one, demand for renewable energy is growing, especially in Asia. In addition, costs of renewable technology such as solar panels have dropped “significantly” compared to 10 years ago, giving investors of these assets a better yield. “Prices will continue to soften and with economies of scale, prices will only go down,” he adds.
Yau is also confident of broader policy support across the region as many countries have given their word as part of the Paris Accord, thereby more likely to be “very receptive and encouraging” towards what companies like Metis Energy are trying to do.
The financial services industry has jumped on the sustainability bandwagon in a big way with lenders becoming more supportive of renewable energy projects, he adds.
In the past, financiers found it more efficient to fund huge capex projects such as giant coal-fired plants rather than smaller renewable projects because they had to do due diligence for all projects regardless of size. “But in recent years, we are seeing lenders making a paradigm shift. Now, they’re very supportive,” Yau says.
On March 30, Metis Energy announced it had secured a US$14 million ($19.5 million), non-recourse loan from a climate fund based in Switzerland called responsAbility Investment AG. This secured loan will be used to finance a pipeline of solar projects in Vietnam by Metis Energy.
A non-recourse loan is one where, in the case of default, a lender can seize the loan collateral. In contrast to a recourse loan, the lender cannot go after the borrower’s other assets, even if the market value of the collateral is less than the outstanding debt.
Yau says lenders providing non-recourse loans have the “highest level of scrutiny” as they lend based purely on the metrics and credentials of the borrower.
Although the Vietnam venture is small compared to other “mega projects” out there, Yau believes it can secure such favourable terms because of the way Metis Energy structures and delivers its projects.
“In the past, when people mention renewable energy projects, you can only invest by giving full equity or corporate guarantees or you have to accept much higher costs. But now, if you deliver it well, you will get recognised by even European financial institutions which represent the highest standards in ESG, project delivery and customer credentials,” says Yau.
Business model
So what is Metis Energy’s business model? The company will fund projects it has secured, be they powered by solar or wind. It will then appoint engineering, procurement, and construction (EPC) contractors. Once the project is commissioned, Metis Energy will take over the project and maintain it for 20 years, making revenue by selling the renewable power generated to users.
Unlike project owners who go for the cheapest contractor by default, Yau maintains his choice has got to be one whose delivery quality is “most suitable in terms of lifecycle costing”.
To Yau, this is important as Metis Energy plans to run these projects for about two decades so operation and maintenance costs have to be taken into account. “If the system doesn’t perform, there is no way I can recover my investment and earn my returns,” he reasons.
On the side of demand, Metis Energy works with customers trying to join the decarbonisation trend, partly because the customers’ own clients are imposing sustainability criteria on their business partners and suppliers.
The way Yau sees it, using solar energy is a rather accessible way to decarbonise, and Metis Energy makes its projects more attractive by charging users a tariff at a discount to the national grid tariff.
On top of that, users get to own the renewable energy certificates, not Metis Energy. This allows users to show their own customers they have done their part to decarbonise.
However, investors do not seem to be very enthusiastic about Metis Energy’s new business thus far. Trading of its shares remains thin, with no trades done on some days. Year to date, shares of Metis Energy are down 4% and last trading at 4.8 cents on July 15, although there was a brief spike to as high as 8 cents in early June. At current levels, the company has a market value is around $144 million.
Existing coal business
Given Metis Energy’s renewable energy focus, management has made a “conscious decision” to let the existing coal power plant and real estate business take a back seat. For one, the company will not be committing further investment into the Ningbo project.
Although Yau did not specify what will be done with the coal business, he says a key part of the transformation into Metis Energy “is to be able to exit from the non-renewable energy businesses so that we can be a purely renewable energy platform”.
When asked if there was a timeframe to divest the coal segment, Yau says any deal to be done “depends on the timing, valuation, [and] depends on finding the right off-taker,” adding that the company will act with urgency but will not rush into things. In any case, it still has the support of controlling shareholder Low whose main business is in the Indonesia-listed coal miner Bayan Resources.
But why would Low, having made his fortune in coal, want to pivot one of his businesses to green energy that is directly competing with the coal business?
Yau simply says that Low is a “savvy” businessman with a diversified portfolio. “Metis Energy has decided to pursue the renewable energy business and transform Manhattan, changing its name so that we can have a clear cut from the traditional businesses. That’s the direction that we will go forward, and we have the full support of our shareholders on that.”
Even with the current conflict in Ukraine causing countries like Germany and France to turn to fossil fuels again, Yau says there is “no turning back” for Metis Energy. “The board and shareholders are fully aligned, the management team will continue to drive this business and just focus on delivering the targets they have set, and be a pure renewable energy player. Coal may remain relevant in many developing economies but that’s not a sector for us.”
