Wednesday, October 31, 2007

Become a Brazilian Ethanol Venture Capitalist for $8

Brazil is known for being sexy... and dangerous.

And an upcoming Initial Public Offering out of that sun-splashed land should be viewed along those lines as well.

I'm talking about a company called Green Power Enterprises, which is preparing to IPO on the Nasdaq at $8-a-share just days from now.

Green Power Enterprises is a pretty amazing company. Not only is it run by a savvy team of Brazilian venture capitalists, it could become one of the best plays on the erupting Brazilian economy over the next 3-5 years.

A Play on Brazil's Exploding Ethanol Market

Why? Because the company's intention is to become a sizable player in Brazil's market for ethanol. Brazil is the leading consumer of ethanol in the world. Ethanol accounts for more than 20% of the country's transport fuel market already and is looking to increase that percentage as oil supplies dwindle (or at least become more artificially inflated).

One other thing to consider is that Brazil is one of the BRIC economies expected to assume a leadership role in the world between now and 2050 (the others being Russia, India and China). All that development will require lots of fuel. You get the picture.

Back to Green Power Enterprises...

Become a Green Venture Capitalist... for $8 Bucks

Recall that I said the company intends to become a major ethanol player. Well, that's because as of now, the company has no business.

I mean, literally, it has no business. The whole point of the IPO is to raise approximately $250 million dollars to use in the acquisition of ethanol producer(s) in Brazil. Although as of now, Green Power - based in Sao Paulo - has no particular acquisition in mind.

To be fair, it's actually not allowed to have a target yet. That's part of the rules of filing as a "blank check" company with the SEC.

Instead, the 3-person team at Green Energy will seek to acquire an existing ethanol producer over the next 24 months.

If it succeeds, it will reverse merge with that company, and your shares of Green Power will suddenly morph into shares of the acquired company. This is another way for a small company to IPO without going through the hassle of filing and paying Wall Street's money men for the privilege.

If Green Power Enterprises doesn't find a target within the next 24 months, it will liquidate the company and you'll get your money back, minus any fees. I'm not sure on this company, but often blank-check firms cannot hand you back less than 75% of your initial investment ($8 per share), so there is downside protection in some cases.

Early In Could Mean Big Gains... but Commensurate Risk

Since 2004, about 125 blank checks have begun trading on major exchanges in the U.S. About 60 of them have found targets, producing gains of between 50-100% with some regularity. Other firms have fared less well, piling up losses in the 60% range according to a new report just released by CNN Money.

With Green Power, you would be paying about $8 a share, which I believe would include 2 warrants excercisable in the case of an aquisition (more to come on this). The pricing structure of blank checks (otherwise known as Special Purpose Acquisition Companies, or SPACS) has typically been $6 a share at IPO, but with inflation, the price is going up!

The company plans to sell 25 million shares, and I imagine it will succeed.

The Ultimate "Early In" Way to Play Brazilian Ethanol

Should the company find a target amid Brazil's booming ethanol economy, shares could double quickly, and you could own a very hot little publicly traded Brazilian ethanol producer before anyone else gets in.

Right now, your choices in that area are very limited.

So this could be the only way to get in early.

Will we recommend this play in Green Investments? Only time will tell. But I certainly would wait until the aftermarket settles down to make our move.

Till then, good investing,


1 comment:

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