PetroAlgae (Biomass) Raising $200 Million in IPO (PALG, FWLT)

PetroAlgae Inc.  has just filed to come public via an initial public offering.  While terms were not disclosed, the filing is for up to $200 million in common stock.  The problem is that this is not going to be treated as a pure IPO in the classic sense.  PetroAlgae Inc. already trades as “PALG” on the OTC Bulletin Board.  The technology sounds very promising on the surface and the underwriting group is actually impressive.  It also lists Foster Wheeler AG (NASDAQ: FWLT) as a partner.

If you couldn’t tell by the name, this is an alternative energy company making fuel or biocrude.  It is a renewable energy company that is licensing and deploying a biomass production platform in the global energy and agriculture markets. Its proprietary technology uses light and environmental management systems and it claims to allow customer licensees to grow aquatic microorganisms at about four-times the natural growth rates. It also notes that this enables the commercial-scale production of two end-products: a fuel feedstock and a protein, biocrude and protein products.

In short, PetroAlgae licenses a commercial micro-crop technology system that enables the production of green diesel and a high-value protein food source in an environmentally beneficial manner.  PetroAlgae said in the prospectus that it believes the end-products produced will remain commercially viable even if crude oil prices went as low as $20 per barrel; and it noted that the profitability of its license units is not dependent on government subsidies nor is it dependent upon historically high oil prices.

This is a developing company that is still in the infancy stages.  The underwriting group is rather large, so this is going to be treated as a true IPO despite the OTC Bulletin Board status.  Goldman Sachs, UBS Investment Bank, and Citi are listed as the joint book-runners, and others in the syndicate are Baird, Cowen & Co., and Piper Jaffray.  With an underwriting group this large and with this caliber of names, PetroAlgae is likely going to be given a lot of interest from Main Street and Wall Street.

The company announced just in July that it has “engaged a global business consulting and internal audit firm” to assist it in complying with the Sarbanes-Oxley requirements.

The company noted in the prospectus that “a customer licensee could generate revenue of approximately $350 million annually per standard license unit and earn a pre-tax unlevered internal rate of return of approximately 30%, based on certain assumptions…” Remember, this is “could” rather than “has.”  The company has no significant history of revenues, operating or net income, cash flows or the other financial performance metrics.  It noted, “To date, we have not been profitable and have incurred significant losses and cash flow deficits. For the fiscal years ended December 31, 2009, 2008, and 2007, we reported net losses of $30.3 million, $20.0 million, $8.3 million, respectively, and negative cash flow from operating activities of $27.6 million, $11.8 million, and $4.7 million, respectively.”

The company noted also that its “current and prospective customer licensees” primarily comprise large oil companies, independent refiners, power companies and multinational agriculture companies.  These should have the ability to rapidly deploy one or more standard license units, with each license unit consisting of a 5,000 hectare micro-crop production facility.  It also claims that it has developed “a strong pipeline of over 300 additional prospective customer licensees that have indicated an interest in the development and construction of approximately 500 license units in over 40 countries.”

Private equity entities managed by Laurus Capital Management, LLC, Valens Capital Management, LLC and their affiliates are the primary shareholders.  The PetroAlgae.com website also lists Foster Wheeler AG (NASDAQ: FWLT) as one of its partners to create end-to-end biomass-to-fuel solutions.

On August 4, 2010, PetroTech Holdings Corp. funded $1,000,000.00 to PA LLC, PetroAlgae Inc.’s operating subsidiary, under the terms of a secured term note and the proceeds of this loan were earmarked specifically for working capital purposes.  PA LLC to pay PetroTech Holdings, on June 30, 2012, the $1 million, plus 12% interest per year.

The company’s presentation is here.

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JON C. OGG