The Tribune

By NEIL HARTNELL

Tribune Business Editor

BAHA Mar's renewable energy partner is giving Bahamian investors buying into its $3 million promissory note offering an option to convert their investment into a collective 20 per cent equity stake, worth $12 million, in its Bahamian subsidiary.

Ocean Thermal Energy Corporation (OTEC) executives, who are currently in Nassau to promote the $3 million worth of promissory notes to Bahamian investors, said the offer was "going very well", as they seek financing to cover their local subsidiary's "development and construction costs".

Fernando Gonzalez, OTEC's vice-president of finance, told Tribune Business that talks with potential Bahamian investors were "going very well".

James Greenberg, OTEC's chief strategy and marketing officer, who is currently in Nassau for investor meetings between June 4-9, added: "Things are going very well. There's lots going on, and it's all good stuff."

A 32-page offering document for what are billed by OTEC as $3 million worth of Series A promissory notes, to be issued by its subsidiary Ocean Thermal Energy Bahamas, discloses that investors will be repaid by the revenues/cash flow generated by its $102.3 million Baha Mar Seawater District Cooling Plant (SDC), a project intended to supply the entire Cable Beach campus with 90 per cent of its air conditioning needs.

And, as a further incentive for Bahamian investors to buy-in, OTEC said that attached to the promissory notes were warrants giving them "an option to acquire [collectively] up to 20 per cent of the company [Ocean Thermal Energy Bahamas] for $12 million for up to 10 years".

The offer document added: "Since many investors have told us they do want an opportunity to participate as shareholders in OTE Bahamas, for each note holder we are providing a warrant that allows note holders to purchase shares in the company. The warrant can be exercised at any time up to 10 years, when the warrant will expire.

"Rather than purchasing common shares at the top holding company (Ocean Thermal Energy Holdings), many Bahamian investors have stated a preference that they wish to support OTEC by way of purchasing a Promissory Note in the Bahamian holding company, Ocean Thermal Energy Bahamas. This is the company that will manage and own the Baha Mar and BEC project companies."

Ocean Thermal Energy Bahamas, which will own the Baha Mar SDC plant when constructed, plus the two 10 Mega Watt (MW) ocean thermal cooling plants being negotiated with the Bahamas Electricity Corporation (BEC), is offering up to 60 promissory notes worth $50,000.

As the offering is a private placement, not a public one, only selected institutional and high net worth individuals are likely being targeted, so the public should not apply.

The promissory notes are set to pay a 10 per cent interest rate, but investors will receive not interest for the first three years until June 30, 2014. This would take OTEC through the Baha Mar development phase, and the $650,137 worth of interest accumulated during that time will be capitalised instead.

Instead, Bahamian investors who buy into the Ocean Thermal Energy Bahamas' promissory notes will receive three equal annual interest payments of $1.468 million every year on June 30 between 2015-2017. These funds will be derived from 50 per cent of the cash flow generated from the Baha Mar SDC plant.

When it came to OTEC's corporate structure in the Bahamas, the offering document showed that Ocean Thermal Energy Bahamas would effectively act as the Bahamian holding company, wholly-owning OTE BM - the entity that would directly hold the Baha Mar SDC plant.

OTE BM will directly receive a planned $76.8 million Inter-American Development Bank (IDB) loan, and issue some $13 million worth of preference shares to be placed by a combination of CFAL and Providence Advisors. Both financings will be used directly to fund construction of the Baha Mar SDC.

Ocean Thermal Energy Bahamas, meanwhile, as the Bahamian holding company will receive $3 million in financing from the promissory notes, plus $10.6 million in equity. That equity financing is broken down into $5.6 million from the US-based OTEC parent, with the $5 million balance coming from DCO Energy, the company engaged to construct the Baha Mar plant.

The four various financing mechanisms, when combined, will raise $103.4 million - enough to cover the Baha Mar project construction costs.

"The company has engaged Raymond James Financial, New York, as financial advisor and debt placement agent. The company has signed a Mandate Letter with the Inter-American Development Bank (IDB) for the project debt financing of the Baha Mar project," OTEC added.

Promoting the rationale for both the BEC and Baha Mar ocean thermal cooling projects, OTEC described electricity prices - and their link to volatile global oil prices -as "the greatest economic problem facing the Bahamas".

Suggesting that higher oil and diesel prices were inevitable, OTEC's offer document added: "This means higher electricity prices, which will act as a drag on the Bahamian economy. Tourism is highly dependent on the price of oil. In some of the Out Islands, the price of electricity is so high, people cannot afford to turn their lights on at night.

"These high electricity prices are like a noose around the neck of the Bahamian economy. Were a solution to be found, with significantly lower electricity prices, it would be an enormous boost for the Bahamian economy, as consumer cash flow would be increased and the cost of doing business would be substantially reduced. It is crucial, therefore, to find a source of electricity that can be quickly ramped up to free the Bahamas from imported oil.

"Whether one owns a business or a home in the Bahamas, this issue of dependency on imported oil - if oil prices rise further - will soon become a situation of 'invest to protect my investment'."