Interview: Denham Capitals’s Justin DeAngelis on dealing in emerging markets

I’ve been working with my publisher Adam for almost five years, which means that I've heard the following story a few times. He started A Word About Wind in 2012, on a beach in Costa Rica, because he was concerned about the impact climate change would have on the world around him.

He believed that unlocking further investment in the wind sector globally would help curb the worst impacts of climate change. In doing so, he helped kick off the AWAW ethos, and our belief in the power of the wind industry to help to build a cleaner and fairer world – and safeguard people and landscapes around the world. But why am I unloading this AWAW 'mission statement' on you? I imagine you all get plenty of that in your own businesses!

The reason is that we’ve got a big soft spot for writing about emerging markets, and the benefits the wind sector can bring to these nations. It’s why we released our second annualEmerging Markets Attractiveness Index last month, and it’s why we were delighted to host Justin DeAngelis, partner at private equity firm Denham Capital, as our guest speaker at our New York Quarterly Drinks on 13th November.

One of Denham’s key goals is to invest in renewable energy companies in emerging markets, and it was great to find out more about Denham’s approach to doing deals in emerging markets – as well as where the firm is focused today. Geographically, it is investing primarily in countries in Africa, Latin America and Southeast Asia, and its portfolio firms including BioTherm Energy, Jenner Reneables, Nexif and Rio Energy.

These areas are often thought of as being higher-risk markets than larger and more established economies in North America and continental Europe. In part, this is due to the higher political risks in some emerging markets, as we looked at in more detail in our Legal Power List special report that came out in August. You can read it here.
However, DeAngelis told attendees at Quarterly Drinks that investing in wind projects in emerging markets was often lower-risk than doing so in more established nations, because the smaller number of players meant less competition. He also highlighted that governments in these countries wanted to support renewable energy schemes.

He said: “At the end of the day, renewable power is cheap and economic. It’s going to keep the lights on – and there’s not many people doing that so, in new markets, you’re able to get long-term contracts.”

Despite the higher perception of risk in emerging markets, DeAngelis talked about Standard & Poor’s research that showed project finance default rates in Africa were actually around five times lower in Africa than the US. He said that this meant Africa was a safe place to do business, despite popular perceptions of the region. And he added that governments wanted to invest but that projects were in short supply.

“What some capitalists don’t realise is that there’s plenty of capital to invest in high-quality infrastructure projects in those markets,” said DeAngelis. He added that the wind markets in India, Turkey and Latin American nations Argentina and Colombia were all worth looking at for investment opportunities in the coming years.

That said, DeAngelis was not blasé about the risks that exist. He said that Denham went into new markets with an “eyes-wide-open approach”, which means bringing an awareness of the challenges of operating in different markets and with people that may have different customs. It also means being selective to sign deals with reliable counterparties, and working with experienced organisations like the World Bank that can leverage their strong relationships in finance globally if things were to go wrong.

Finally, he said it meant taking out political risk insurance, and maintaining close relationship with the US State Department. Manageable risk doesn’t mean no risk.

Ultimately though, DeAngelis said that a move to renewables, backed by private investment, would help to spark behavioural change in established and emerging markets and, with that, help to tackle climate change – much as we do.

“If you want mass change in people’s activities, you have to give them an economic solution rather than a subsidy-driven solution – and that’s why we moved away from major markets,” he said. On that first point, we can only agree.