TPG-Backed Agricultural-Tech Firm Sells Its First Green Bond

Solinftec, the Brazilian agricultural-technology firm backed by private equity giant TPG, is selling about 140 million reais ($27 million) of green bonds.

The inflation-linked securities, denominated in local currency, use agricultural receivables from Solinftec as collateral. That makes it possible to offer maturities of up to six years, unusual for a Brazilian company of Solinftec’s size, according to Chief Financial Officer Lais Braido.

TPG-Backed Agricultural-Tech Firm Sells Its First Green Bond

“We are financing our expansion into new clients and new products with long-term debt, and that’s very good news for us,” Braido said in an interview.

Brazilian investors are looking for higher-yielding alternatives to Treasury bonds as basic real interest rates hold below the rate of inflation. The sale of CRAs, as notes using agricultural receivables as collateral are called, surged to about 4.8 billion reais through April, almost double the amount in the same period last year, according to Anbima, the capital-markets association.

Demand is even stronger for bonds from companies with good environmental, social and governance practices, according to Luiz Ferraz, managing director of fixed-income distribution at Banco Itau BBA, which structured the transaction.

Solinftec’s technology connects in real time machinery used in the fields to a platform it calls Alice, which coordinates production to reduce the use of fuel, fertilizers and seeds. Local weather forecasts help the company advise clients on whether to spray pesticides, for instance, avoiding waste during strong winds or rain, and preventing the products from spreading to neighboring farms.

Equity investors in Solinftec include TPG’s alternative and renewable technologies growth equity platform, TPG Art; AgFunder Inc. and Unbox Capital, a private equity firm that invests part of the Trajano family’s fortune.

The CRAs were sold to about 35 investors, including hedge funds, family offices, credit funds and wealthy clients of private-banking units at Itau Unibanco Holding SA, Credit Suisse Group AG’s Brazilian unit and Banco BTG Pactual, Ferraz said. CRAs are tax-exempt for individuals in Brazil, and the ones from Solinftec offered attractive yields, he said.

About 90% of the notes mature in four years, with a one-year grace period, and the rest are due in six years with a three-year grace period. The longer-term CRAs feature yields that vary based on revenue performance. The firm generates 120 million reais in recurring annual revenue, and about 45 million reais in customer contracts have been used as collateral.

“Many clients who use our services are huge Brazilian companies with the best credit rating possible, and our contracts with them last up to eight years, so we have top-quality receivables to offer as collateral,” Braido said.

Planeta Securitizadora Agro, a unit of Gaia Securitizadora SA, managed the deal. The ESG certification came from the Climate Bonds Initiative, while Sitawi Financas do Bem issued a second opinion.

In five years, Solinftec helped customers avoid emissions of more than 680,000 tons of carbon dioxide, based only on the reduction of the use of diesel fuel by agriculturalmachines, according to Guilherme Guine, Solinftec’s director of product development. That’s the equivalent of planting more than 30 million trees or the use of 700,000 electric cars, he said.

TPG-Backed Agricultural-Tech Firm Sells Its First Green Bond

“Solinftec allows its clients to reduce costs and at the same time improve ESG standards; there is no need to spend money on carbon credits,” Guine said. “The firm was born in the heart of Brazil’s agricultural world, not in Silicon Valley.”

The company, created in 2007 by seven Cubans, began by providing technological support to sugar-cane giant Cosan SA before offering the services to other clients. After using Solinftec technology, Cosan was able to cut the number of harvest machines it uses to 220 from 250.

Solinftec monitors about 80% of Brazil’s sugar-cane crop and is expanding in the soybean market, serving nine of the nation’s top 10 producers. Worldwide, it monitors 22 million acres (8.9 million hectares) of crops, including corn, cotton, coffee, oranges and eucalyptus.

In June 2019, the Aracatuba, Sao Paulo-based company set up shop in the U.S., at the Purdue Research Park in West Lafayette, Indiana. It also has an office in Cali, Colombia. Solinftec has about 600 employees and serves clients in 14 nations.

Revenue increased 60% in 2020, with more than 100 million reais in annual recurring contracts with a five-year average maturity. It raised 80 million reais in a CRA sale in January 2020.

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