The Fortescue Metals Group Ltd (ASX: FMG) share price is under the spotlight after announcing a new initiative for its green energy segment – asset management.
As a reminder, Fortescue is looking to develop a worldwide group of projects to create green hydrogen (and green ammonia).
Fortescue’s asset management move
The company has set up Fortescue Capital, headquartered in New York City and named Robert Tichio as CEO and managing partner. Tichio had spent 17 years at Riverstone Holdings, a New York based private equity outfit.
The idea is that Fortescue Capital is a green energy investment accelerator platform and an “integral step in Fortescue’s commitment to deliver green energy projects and decarbonisation investments.”
Joining the team will be senior leaders from a background of sustainable infrastructure, climate technology, energy and private markets. The team includes Nathan Craig, Rael McNally and Jennifer Zarrilli.
Tichio will report to Mark Hutchinson, CEO of Fortescue Energy and the operating board of Fortescue Capital.
Fortescue Capital is being developed as a fiduciary for third-party capital, it will complement the energy and metals internal corporate finance teams that already exist and work collaboratively to serve Fortescue shareholders.
The funding models will differ on a project-by-project basis as projects are formally approved by the Fortescue board. Fortescue expects to hold stakes of between 25% to 50% in each project, with third-party investors holding the rest. It’ll be interesting to see how this affects the Fortescue share price over time.
Those potential capital partners include sovereign wealth funds, pension funds, endowments, insurance companies and ultra-high net worth family offices.
Management commentary
The Fortescue Energy CEO Mark Hutchinson said:
Fortescue is taking its global pipeline of green hydrogen and green ammonia projects to Final Investment Decision, and in doing so has communicated our intention and desire to bring additional equity investors onboard. Further, Fortescue has previously communicated its planned investment to decarbonise its Pilbara operations, and we see Fortescue Capital as an essential tool of engagement as we embark on both missions.
What to make of this for the Fortescue share price?
It’s a very interesting move. The company has made investors aware that external investors could be brought in, but this is a fascinating move that allows the business to generate returns from stakes that it no longer owns.
If Fortescue can recycle capital effectively, this method of bringing third party investors on board could be a smart move, if it brings on the right investors and executes well on the projects. There are some key questions such as who pays for the developments (and when)? How will Fortescue selling green hydrogen to its customers work – will it act as a middle man (and generate earnings from that too)?
If it means Fortescue can supersize its green energy ambitions, then it’s a good move. As a shareholder, I’ll be following along closely.
