Down but not out, Velocys eyes fresh funds as CLN falls through
An aerial view of Velocys Ohio Facility.
It has been a bad week for Velocys – the Sustainable Aviation Fuel (SAF) technology company.
On Tuesday, it announced that it had failed to meet requirements to secure $15m investment via convertible loan. Its share price fell from £0.97 to £0.24. It has since bounced back to £0.32.
On Wednesday, nearly 225m shares of Velocys were traded – 110 times that of the average during the past 30 days.
The ‘carbon-negative’ technology provider has planned two full-scale SAF bio-refinery reference projects. One in Mississippi, US and the other in the east Midlands in the UK. Both are looking to use the Fischer-Tropsch process to make SAF from municipal solid waste (trash bags) and wood waste. The company plans to showcase the commercial viability of its technology by producing SAF at the two plants.
In May this year, Velocys announced a plan to raise at least $40m to scale up the business through a share offering, retail offer, open offer and conditional issuance of convertible loan note (CLN).
The offering prospectus said the capital raise would support significant scale-up and help achieve its ambition to become a leading provider of SAF solutions. The solution part is important. Although it is partnering with refiners, Velocys does not want to operate them, it just wants to sell its technology.
The company was eyeing dual listing by raising capital from the US markets. The plan was to achieve a strong foothold in the US. A manufacturing and catalysis facility in the Ohio, US was launched just eight days ago.
As part of the capital raise plan, US private equity firm Carbon Direct Capital agreed to invest $15m via CLN if the company could find $40m from other investors. This week it announced that it had failed to meet the requirements for the CLN before an agreed deadline causing the stock prices to nosedive.
Velocys says that it is talking with strategic investors to obtain long term funding. However, any investment resulting from these discussions is unlikely to be on the same terms as the previously announced CLN. Carbon Direct Capital, the growth fund behind the CLN, was doling out $15m for zero coupon in the first 21 months.
“It has become clear that any investment into the company resulting from [future] discussions is unlikely to be on the same terms as the previously announced CLN,” the company informed its shareholders in the note.
On paper, Velocys looks like a strong candidate to raise finance. The Mississippi project has already entered in multi-year offtake agreements worth £3.1m with Southwest and IAG (parent company of British Airways, Aer Lingus and Iberia among others).
Meanwhile, Velocys already has an option agreement with British Airways to sell 50% stake in the Immingham project.
The company’s current cash balance – £6m – will help it continue operations. But the company will need a liquidity injection before the end of 2023. In its half-year results announcement during September, Velocys said it was hoping the funding from Carbon Direct Capital will help extend its working capital runway and pay for commercial and engineering scale-up of its newly launched Ohio facility. It seems that will have to wait.
Unless additional funds are raised, operations are likely to suffer, and the US expansion could be stalled.
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