Helping arms and aerospace companies go green

Tchenguiz banks on green offset deals
The Sunday Times
1 April 2007
By Jenny Davey

THE wealthy entrepreneur Vincent Tchenguiz is planning to build a £5 billion business by helping arms and aerospace companies go green.
Tchenguiz has set up a new company called Co2 — Offset to Ozone, which aims to help defence manufacturers find investment opportunities in environmental, technology and healthcare companies under so-called "offset" arrangements.
Tchenguiz told The Sunday Times: "I can see the money. I will make a fortune."
Foreign defence and aerospace companies are compelled to invest back in the country they have sold arms or planes to. The investments in effect offset the trade imbalance caused by the funding of the arms deals.
Offset agreements vary from country to country, but many developing nations prefer defence companies to facilitate investment in companies or projects that create jobs and help tackle environmental problems, rather than ploughing money back into the arms industry. Offset requirements typically range from 10% of the purchase price to more than 100%.
Existing defence-related offset liabilities from defence companies are estimated to be worth $177 billion (£90.7 billion).
About $16 billion of new, defence-related offset liabilities will be created each year, as more countries introduce official offset policies.
Defence companies do not have to invest all the cash themselves in offset deals — they just have to prove they have caused the investment to happen.
Tchenguiz aims to cash in by co-investing alongside defence companies in offset projects. He also hopes to get fees from defence companies for helping them to find suitable offset investments.
The Iranian-born entrepreneur has already invested $500m for stakes in up to 1,000 companies working on technology and climate-change solutions. He has also taken a 6% stake in Imperial Innovations, the research and development arm of London’s Imperial College, and is talking to other universities, including Oxford, Reading and Columbia in New York. Universities are happy to work with him because he could help them sell their ideas about technology and climate change to as many as 30 different countries. Tchenguiz hopes the defence firms will invest in these businesses as part of their offset agreements, helping them to soar in value.
"This has been a very fragmented market and defence companies have been struggling to find investment projects," he said.
"By bringing scale and a balance sheet to it, and having a large portfolio of companies with projects, we can take some of the friction out of the process."
He has already struck his first deal with South Africa’s President Thabo Mbeki — a 1 billion rand (£76.8m) environmental fund that will provide contractors with offset credits.
The fund will invest in a range of environmental companies and technologies in South Africa and other countries in the region.