Lighthouse Finance branches into India, new species focus with founding of Lighthouse Seafood Advisors
Lighthouse Finance has formed a subsidiary to further its business in South and Southeast Asia, and to diversify its focus beyond salmon. Lighthouse Seafood Advisors LLP will be led by Rahul Kulkarni, the founding partner of Blue Green Initiatives and an aquaculture industry veteran with more than two decades of C-level experience across the value chain, last being as a board member of Nutreco/Skretting Feed joint venture company in India. In an interview with SeafoodSource, Kulkarni and Lighthouse Finance Partner & CEO Roy Høiås discussed their new initiative and its short- and long-term goals.
SeafoodSource: Can you describe the origins of the partnership and its overarching objectives?
Høiås: The reason we started talking to Rahul was that we saw that there was a lot of activity going on in India. With his knowledge, expertise, and experience, it was clear Rahul was covering a lot of ground in the seafood industry that we actually don’t have much experience in from the existing operation we have. There is his strong background in shrimp value-chain of course, but also the way that Rahul has been establishing relationships with global partners and inviting them into India – sensing the need of the local industry to become globally competitive – that was to me the first and most-important part of beginning to talk about the idea of establishing Lighthouse in India with him in mind. We kept in contact and talked to each other even when we did not accept any business prospects that came our way, and when Rahul became free to pursue new opportunities, we saw the perfect occasion to work together on this. We believe there’s going to be huge industry development coming to India and Southeast Asia the next couple of years, and now Lighthouse is present there. Overall, it’s just building the Lighthouse Finance business as we have always dreamed of doing.
So, we opted for Lighthouse Seafood Advisors to be a subsidiary of Lighthouse Finance, which means we’re going to be measurably focused on providing financial advisory to the seafood and aquaculture sector, as we have been doing for more than a decade. It’s actually a joint venture between Lighthouse Finance and Blue Green Initiatives, which is the company Rahul founded last year. With both inclined to play a part and contribute to this sector we have been so involved in, Rahul and I shook hands and agreed to build this venture together, with Lighthouse holding a 51 percent interest. We are based in Mumbai, which is the financial capital of India.
Kulkarni: Well, I think the origin of partnership was laid in late 2014, when I got the opportunity to see and realize firsthand the generational gap in aquaculture industry of Norway & that of India. As part of a business delegation accompanying India’s then President on his maiden official visit to Norway, I could get the first-row chance of interacting with Norway’s top & best, that left me mighty impressed. That set the ball rolling for us forming partnerships with leading Norwegian companies for their India foray. Guess, this partnership with Lighthouse was in a way destined to happen.
I first came in contact with Lighthouse three years back through one of our company’s collaborations in Norway, where we looked at Lighthouse supporting us to raise some growth capital as well as add strategic value with their rich experience, for our operations in India and USA. In India, there are a lot of companies which could use help to scale up in a big way and even though many of those projects have good prospects, if they don’t get the right financial solution – if their lenders don’t understand their business model or are risk-averse to this sector, as is mostly the case – these projects suffer or don’t take-off. I have experienced it firsthand and always longed for the kind of solutions that are available to companies in Europe & USA, provided by the likes of Lighthouse. With Lighthouse coming in, since they understand this business deeply, we knew they could be a big help and even be game changer for some big projects we were envisaging at that point.
SeafoodSource: What will Lighthouse provide in India that has previously not been offered or available?
Høiås: We know that there exists a void in this part of the world, including India, in terms of what Lighthouse brings to the table. Besides the appetite for large capital-intensive aquaculture projects, we bring in expertise to structure and model the business to be more efficient, scalable and be competitive, globally. We bring in leading industry partners with their proven prowess and solutions, as well as we bring our funding partners who are ready to offer best terms, tenure and understanding possible. And we also bring in support from Government Guarantee Schemes wherever possible. We are hoping that our investments, Impact Investments, bring cheer to the geographies we enter into.
Kulkarni: Well, first, there’s Roy & team, who bring in immense industry knowledge & understanding, working with a broad-spectrum of them since a decade and experience working on big projects. Then there’s the financial solution aspect. We will be in a position to handle projects in this part of the world from a perspective of right structure and strategy, along with financial solutions not yet widely prevalent in these countries. Solutions like off-balance sheet financing which impacts the leverage ratios positively and maximizes benefits, adds a lot of value because of the way Lighthouse does it. There are lenders/funds who are considering investing in this sector but lack the capability, exposure and thus display low risk appetite. We are looking to bridge that gap. With Lighthouse legacy of completing big-value projects and just the sheer wide-ranging experience in the industry, we offer support to these funding partners throughout the whole process and beyond. And ultimately the sector benefits with availability of capital.
SeafoodSource: What are some areas of opportunity that you’re hoping to get involved in?
Kulkarni: Besides the new footprint, which is bringing in traditional asset funding projects of shrimp farms, processing plants, feed plants, and fishing vessels, we now see opportunity in aquaculture of species like tilapia, barramundi, and seriola to name a few, as well as crab and seaweed, coming Lighthouse’s way. Sea-cage farming is also attracting lot of interest, still in its infancy in this part of the world. There have been ongoing discussions between the governments of Norway and India. Interest levels (in a partnership) are high, but know-how and eco-system is lacking. Lighthouse, with its experience, will look at supporting these projects, whether that’s helping with policy guidelines, technology, business modeling, and aiding government, existing players or those looking to make forays into the industry, figuring out how to make projects work or how to get infrastructure and other aspects in place.
Høiås: Globally, we are seeing recirculation aquaculture (RAS) projects getting lot of traction, as is offshore farming of fish species other than salmon and in other than the usual geographies of Scandinavia, Canada, Scotland, Chile. Besides these RAS prospects, we have been increasingly approached for circular economy projects, not only in greenfield but brownfield transformations as well. Lighthouse has been mostly a salmon-focused business but now there is going to be a development of new species and geographies as we go in the future. We are engaging in Indonesia, Malaysia, Vietnam, Thailand, Bangladesh, and also Sri Lanka, which is just opening up, so we’re excited to see how that landscape shapes up. And Latin America too. As we speak, we are assessing projects in Ecuador and in Mexico. And quite a few projects from Africa are already on the table, with few of them large & fully integrated.
SeafoodSource: Any specifics on what those projects might be focused on?
Kulkarni: Well, while we cannot delve into the project specifics, shrimp RAS are almost in equal measure to salmon. As for sea-cage projects, its barramundi, cobia, amberjack and the like. We think there’s also a lot of potential for tilapia, especially in India, and we would want to focus there. Though farming of tilapia is underway here, it’s still unviable to a large extent. But we would say in the next four to five years, there will probably be some projects which would be having good enough experience and scale to really start a new chapter for the industry. India has the potential to become supplemental sourcing option to China & Vietnam for tilapia. And India’s domestic market cannot be discounted, as it’s a large, populous country with fish diet integrated into its food culture.
SeafoodSource: Has COVID-19 impacted your approach as you’ve gotten closer to launching the new entity?
Kulkarni: COVID pandemic has impacted all around and one can say that companies in the developing world must be among the hardest hit in the seafood industry. We feel this is a time to really look at how we can be of any assistance. Though Lighthouse typically goes for high-value capital intensive projects with scale, we are now also open to take on smaller projects (say, around [EUR] 5 million [USD 6 million]), though selectively. If a company or project is in the right mode, has some downstream or upstream capabilities, or looking at consolidating or just staying buoyant, we think we can play a role and help it overcome the pandemic induced challenge.
SeafoodSource: The Indian shrimp sector is much less consolidated than most other areas of the seafood industry. Does greater consolidation lie ahead, and will Lighthouse play a role in that effort?
Kulkarni: Simple answer is yes; Lighthouse will play its role in such an effort. Indian shrimp industry is chiefly 90 percent smaller players – across the value chain. So, the ratio is hugely skewed. When looking at consolidation, for it to happen, we believe good timing plays an important role besides having the right opportunities and targets. Right now, nobody can say which way the whole industry is moving, given the pandemic impact and of the subtle shift geopolitics is creating on the market side. At the moment, the bigger the player, probably the worse is the impact of any potential disruption, because of their play across the value-chain. It will take another year for scenario to be clearer, and subsequently there will be ground for consolidations with many stressed assets anticipated owing to the economic impact and hardening stance of Banks towards lending to this sector. In the past, there have been cases when a company contemplated an acquisition but then settled for a greenfield, finding it to be quicker and economical. Given that mindset, we think consolidation is going to be subdued. Having said that, there are weaknesses in the industry that bigger companies can come and exploit to everybody’s advantage. It’s important to note that, India doesn’t have many large players yet. So, industry giants from other sectors can play a role in the future, especially as the focus from the government downwards is shifting towards aquaculture. Rising seafood exports and softening of Indian currency could attract some large players, including PE/VC funds. When that happens, we surely anticipate consolidation.
SeafoodSource: Lighthouse Finance has become a champion of the so-called circular economy model for aquaculture development through its own newly conceived 100,000 MT salmon project in Sweden. Does it have plans to develop any additional circular economy projects?
Kulkarni: At the core of such plans is to keep moving deeper from sustainable/ESG investments into impact investments. Of course, we being debt focused these would be return first, green loan kind of impact investment projects. Internally, we are working on trying to build on what Lighthouse is doing with its own [EUR] 2 billion [USD 2.4 billion] Quality Salmon project in Sweden, by conceptualizing similar but a tad smaller projects in diverse geographies, but species other than salmon. It could be shrimp alone, it could be shrimp and barramundi, or it could also have tilapia – something like that is what we have been discussing, though not as a priority.
Høiås: Regarding location, in my opinion, the Middle East has become a hot area right now and they are ticking all the right boxes. Now with our presence in India, we shall be exploring our options there as well if we are able to get right partnership going. Let us see if the big corporates in India are ready for diversification into this growing sector. For such large project, we would also be looking at how keen Government of India is to support us, as the Swedish government has been. Post pandemic, large projects will help generate employment besides foreign exchange.
SeafoodSource: Does the creation of Lighthouse Seafood Advisors fundamentally change Lighthouse’s approach, or represent a new chapter for the company?
Høiås: Our approach is, we start with obtaining the knowledge. Lighthouse is now in a position where we really have the knowledge on a huge part of the industry that we didn’t have before. Based on that, and adding to our resources, we have the opportunity now to start working with clients on the topics of circular economy industry models, joint venture models, new technology, environmental impact, and other bigger goals. Now we have capacity and positioning – nobody is asking if we understand the industry. Now it’s more whether we can possibly bring additional value to them than if they tried to do a project by themselves. I’m quite confident we will be now working in countries and with companies we didn’t think of working with previously because we didn’t understand the market or the business model so well. That future we had envisioned is now suddenly advancing very quickly, and we are getting very concrete cases that gives us confidence that we are on the right track. The response from the market convinces us that we are bringing value to them in many different ways, consistently.
Photo courtesy of Rahul Kulkarni/Lighthouse Seafood Advisors