Deal focus: Delta, Daiwa target Myanmar’s PET peeve

Coca-Cola’s world without waste (WWW) initiative includes goals to make all packaging 100% recyclable by 2025, use 50% recycled material in bottles and cans by 2030, and collect and recycle a bottle or can – regardless of where it comes from – for every one sold by 2030. Programs like this have given impetus to investments in recycling companies, notably in Southeast Asia.

Circulate Capital, a VC firm dedicated to reducing marine plastic pollution, recently made its first two investments in recycling businesses in India and Indonesia, respectively. Delta Capital Myanmar and Daiwa Securities Group have followed suit with a $12.6 million commitment to Commercial Plastics Holding (CPC), a Myanmar-based polyethylene terephthalate (PET) bottle recycler.

While both investors position it as a deal with strong environment, social and governance (ESG) credentials, CPC is a manufacturing business, and the investment is underpinned by commercial rationale. “There are concerted efforts by multinationals, and by governments through regulation, to drive recycled content as part of plastic products. Plastics and single-use plastics are a well-known problem,” says David van Oppen, Delta’s CIO.

Delta is also investing in a well-known target. CPC is a spin-out from Interplast, a PET bottle manufacturer that already features in the GP’s portfolio. The company is one of only three of its kind in Myanmar and counts Coca-Cola as a customer. CPC was set up in 2016 as a complement to the core bottling operation. As it grew, a decision was taken to split the company in two. Delta and Daiwa are taking a controlling interest in CPC, though Delta remains an investor in Interplast.

Myanmar consumes around two billion PET bottles a year, which equates to 40,000 metric tons of plastic. This is low compared to the country’s regional peers, but Delta expects consumption to grow at an annual rate of 10-15%. GA Circular, a specialist recycling research group, estimates that PET bottle consumption in Indonesia, the Philippines, Vietnam, Thailand, Myanmar, and Malaysia will almost double between 2018 and 2030, reaching 1.52 million tons.

At the same time, Myanmar’s PET bottle collection rate is relatively high at 64%. GA Circular puts the average rate for the same six countries at 26%, with $199 million worth of PET bottles lost each year to landfills and environmental leakage. CPC wants to collect and recycle more than 20% of the bottles made in Myanmar.

At present, the company produces plastic flakes used in packaging, but they aren’t of high-enough quality to come into contact with food. Delta and Daiwa’s capital will go towards capacity expansion – van Oppen describes it as “a significant multiple in scale” – and producing food-grade recyclable plastic, known as rPET. This involves turning the raw material into pellets rather than flakes.

The two private equity firms have co-invested in Myanmar before, with Delta valuing the networks Daiwa can bring into play when it comes to making trade sale exits. “We would be the consolidator as the sole facility in Myanmar with rPET, but there are multinationals and regional companies with significant operations across jurisdictions in this sector,” van Oppen adds.

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• Topics
• Southeast Asia
• Buyouts
• Cleantech
• Myanmar
• Delta Capital Myanmar
• Daiwa Securities Group
• manufacturing