OPIC is Funding Green Growth in Developing Countries
Brothers and business partners in Southern California, Ryan and Jeremy Black founded Sambazon Inc. in 2000 when friends traveling in Brazil returned singing the praises of a South American beverage made from the anti-oxidant-rich juice of the acai berry. Sensing the mass-market appeal of the fruit, which grows wild from palm trees in hot, moist climates in Latin America, the brothers found a Brazilian supplier and imported an initial container of frozen pulp. From the pulp they produced a juice associated—by popular belief if not scientific evidence—with anti-aging qualities as well as other healthful traits. Starting with the juice bars thriving around their San Clemente base, the entrepreneurial brothers began packaging and marketing their product aggressively. Soon enough they were issuing replacement orders to their supplier.
Success led to new issues. Could the brothers consistently import enough frozen pulp to meet growing demand? Seeking to create a more reliable channel, they envisioned building and operating their own processing plant in the Brazilian rainforest. Cost of that plan: about $10 million.
“As a small business without a lot of assets, we were challenged in the world of credit,” says Ryan Black, the company’s chief executive. Realizing that obtaining credit for an overseas project would be especially difficult, the brothers turned to their investors for advice. One, a partner at Root Capital, suggested the brothers approach the Overseas Private Investment Corporation in Washington, D.C. OPIC, as the agency is widely known, follows an agenda of fostering ecologically sound, socially beneficial economic development in industrializing countries around the world. About three out of four of their borrowers are companies not much bigger than Sambazon, including some significantly smaller.
OPIC, the brothers learned, had specific requirements for potential borrowers. For one thing, the project had to be located in a country that OPIC had targeted. Brazil was one. And the project needed to meet environmental and economic benefit requirements. Building their processing plant in the rainforest turned out to qualify as a green project. OPIC decided that their business model would in fact deter development by adding value to the living trees and the ecosystem. The land on which the trees grew became more valuable because the trees were being harvested.
In 2005, the brothers applied to OPIC for $3.7 million to be used for the construction of a 50,000-square-foot, environmentally sustainable berry processing plant in the rainforest. The facility would be environmentally friendly, organically oriented and staffed by local workers. The loan came through in 2006. The company kicked about $6 million into the pot and construction began in Brazil.
Citing the loan as providing the flexibility the company needed to grow its working capital, Black notes, “As an agricultural company with an annual crop period, this was immensely helpful. OPIC helped us develop our strategy of vertical integration. Now we manufacture our own raw material instead of buying it from a third party. The new plant allowed us to take control of our own raw material manufacturing. This gave us confidence and the quality control necessary to grow our business.”
Today, more than 10,000 small farmers harvest acai berries in the rainforest and sell them to Acai do Amapa Agroindustrial, Sambazon’s Brazilian subsidiary. The berries are processed, frozen and shipped to San Clemente to be packaged and sent to grocery stores and restaurants around the world. Costco, the retail giant, is a major customer. Sambazon also exports to 10 countries.
With OPIC’s encouragement, the brothers have linked their product with sustainable growth in the environmentally sensitive rainforest. “Every year, we continue to certify more and more farmers in fair trade and organic farming,” says Ryan Black.
An entrepreneurial irony: By creating global demand for the acai juice, Black notes, Sambazon helps preserve the rainforest by harvesting its fruit, making its trees too valuable to cut down.
About 600 miles away, in a vastly different industry on a massively bigger scale, Reno, Nevada-based Ormat Technologies also turned to OPIC. The company, a publicly traded clean-tech power plant manufacturer and service provider with a growing overseas presence, sought a loan of more than $300 million to upgrade a geothermal power complex in Naivasha, Kenya. Ormat received a loan consisting of three tranches, or liability levels, the first two valued at $85 million and $135 million respectively, representing immediately available capital. A third tranche, valued at $45 million, could be drawn upon if needed. The loan was structured so that interest rates were set initially below 3 percent.
Dita Bronicki, chief executive of Ormat, describes OPIC as serving a vital niche in international capital project finance by lending money in markets like Kenya, a no-go country—like most of Sub-Saharan Africa—for most western lenders. “OPIC takes on the project risk, lending against the full faith and credit of the U.S. government,” she says. “OPIC makes companies like ours competitive in the international market.”
Rajni Bhandari, business development manager of Azure Power, a solar power plant manufacturer based in New Delhi, calls OPIC “instrumental” in the company’s growth and success as well as advancing the development of India’s solar power sector. Bhandari set out on a quest for finance at a particularly dismal time—2008. The lenders on his short list “were starting to disappear each month, starting with the failure of Bear Stearns, followed by Lehman Brother and several other banks on Wall Street,” he recalls. “It was almost impossible to source commercial financing for a solar power project in India from a bank in the United States other than perhaps OPIC and Ex-Im,” referring to the Export-Import Bank of the United States. “OPIC,” he adds, “was quick to respond and had a good understanding of the sector and project at the time.”
In 2009, Azure Power obtained a $6.2 million loan from OPIC to build India’s largest solar power plant at that time, in Punjab. Azure’s president, a nationalized U.S. citizen named Inderpreet Wadha, helped the business qualify for OPIC assistance. (The agency is mandated to find companies with U.S. affiliation to serve as what it calls sponsors, meaning producers or service providers.)
Azure Power’s Punjab plant was completed in 10 months in 2009, according to OPIC. Coming online with 7,560 solar panels, the 2-megawatt plant provides enough power for 20,000 people in 4,000 rural homes spread across 32 villages.
In 2010, Azure Power closed on a second OPIC loan, this time for $26.8 million. With this funding, it began construction of a second, 10-megawatt solar facility in Gujarat.
OPIC cites Azure Power’s two projects with having already created more than 100 permanent jobs in India, and about 200 temporary construction positions. The projects have also created about 15 jobs in the U.S. More than $30 million in exports of equipment and engineering services from the U.S. are anticipated by the agency.
Companies like Sambazon, Ormat and Azure Power are among many hundreds of U.S. companies that have received financial support from OPIC since the organization was founded in 1971. These are “sponsors,” in OPIC parlance. To date, OPIC has supported approximately $200 billion of investment in more than 4,000 projects, generating $75 billion in U.S. exports.
The organization’s monetary assistance comes in the form of project finance, investment funds or political risk insurance—sometimes all three. As the U.S. government’s development finance institution, OPIC supports private investment in more than 150 developing and sometimes politically turbulent countries around the world, financing the development—and local work forces—of products that produce economic, environmental and social benefits. Projects range from renewable energy construction to food, health, tourism, infrastructure, microfinance, technology and communications. In recent years, the agency has heightened its emphasis on renewable energy projects.
For many borrowers, OPIC represents the only hope for getting finance in markets that private-sector lenders prefer to avoid.
“Since OPIC offers the full faith and credit of the United States on the amount invested, it is perceived in the market as the gold standard for insuring political and investment risk for U.S. companies abroad,” says Joe Schoonmaker, marketing director of Risk Protection International. “As to coverage, time, terms and geopolitical issues, I would suggest OPIC is the only game in town in the U.S.
“OPIC seems more relevant today as the U.S. has a heightened concern for creating jobs, correcting the balance of payments, environmental justice abroad and a good neighbor policy in general,” adds Schoonmaker, who also heads up the District Export Council in Manhattan, a volunteer organization servicing small exporters.
Roger that, adds Azure Power’s Bhandari. “OPIC has supported other companies in early stages and that support can truly transform a company and help it become established. I would recommend companies go to OPIC that have a strong vision, well-thought-out business plan, skilled management and committed investors. It is these types of qualities in my opinion that OPIC looks for to ensure it can build strong partnership with the borrower.”
Banking On Exports