Coskata Inc. (COSK) (COSK), a biofuel company
backed by venture capitalist Vinod Khosla, shelved its $100
million initial public offering and is seeking investors for a
plant that will convert natural gas into ethanol.
Unfavorable market conditions were the main reason for
putting the IPO on hold, Chief Executive Officer Bill Roe said.
The closely held company, which also counts Total SA (FP) and
Blackstone Group LP among its investors, registered Dec. 16 to
sell shares.
Coskata is the second biofuel company this year to
reconsider an initial share sale, after Canada’s Enerkem Inc.
withdrew its offering in April. Other biofuel developers that
have completed deals in the last two years have lost value, and
“that hasn’t helped,” Roe said in an interview yesterday. “It
has soured a lot of the investors.”
The company, based in Warrenville, Illinois, will attempt
to raise the same amount through a private placement with
investors and a deal may be completed during the fourth quarter,
Roe said.
“We don’t believe that the markets are open for new
issuers at the moment,” he said. “It’s just not the right
time.”
The backing will support Coskata’s first commercial
facility, which will use gas as the main ingredient in a process
that yields ethanol.
Coskata initially planned to use the proceeds from the IPO
to build a facility in Alabama to produce ethanol from wood
waste. The company converts carbon-containing materials into
hydrogen and carbon monoxide with gasification technology
licensed from Alter NRG Corp. (NRG), then uses its proprietary
microorganisms to process the gases into ethanol.
‘Significant Pivot’
The new plant will be at a different location, Roe said.
“This is a fairly significant pivot for our company,” he said.
“Up until fairly recently we had been intending to
commercialize on a biomass-conversion platform.”
Coskata is shifting to gas because it has plunged in value,
he said. Prices hit a 10-year low in April.
Ethanol was about six to eight times more expensive than
gas last year per million British thermal units, presenting
“compelling economics” for companies that convert gas to
transportation fuels, Coskata said on its website.
“When we use natural gas as opposed to any other carbon-
containing material, it’s a much, much simpler process,” Roe
said.
Shifting Requirements
The planned transition to gas-based ethanol is also due to
uncertainty about federal biofuel mandates, Roe said.
The Renewable Fuel Standard, or RFS, a U.S. Environmental
Protection Agency regulation, requires oil refiners to blend 36
billion gallons (136 billion liters) of biofuels a year with
their products by 2022. The industry is unlikely to produce
enough to meet some of those requirements, including so-called
cellulosic biofuels made from non-food plant material.
That’s prompted House Republicans to introduce a bill
calling for the RFS to be modified or repealed. The American
Petroleum Institute sued the EPA in March, saying some RFS
requirements are unachievable.
Given the potential the the RFS will be changed, investing
in cellulosic-biofuel plants is “not a risk that we’re willing
to take,” he said, though “we’re not at all abandoning the
notion of biomass as a feedstock.”
Biofuel IPOs
Two other U.S. biofuel IPOs are still pending. Fulcrum
BioEnergy Inc., which produces ethanol from gasified trash,
registered Sept. 22 to raise as much as $115 million.
Mascoma Corp., another of Khosla’s biofuel investments,
filed Sept. 16 to raise as much as $100 million to develop
technology that produces ethanol from wood using genetically
modified bacteria. Neither company has said how many shares they
plan to sell or at what price.
Coskata hasn’t withdrawn its IPO registration with the U.S.
Securities and Exchange Commission, spokesman Matthew Hargarten
said by e-mail. “They will still consider a public offering at
some point in the future, but they do not want to have the
public markets dictate their commercialization timeline.”
To contact the reporter on this story:
Andrew Herndon in San Francisco at
aherndon2@bloomberg.net
To contact the editor responsible for this story:
Reed Landberg at
landberg@bloomberg.net
