Good Money Following
Eight domestic insurance companies invested more than 400 billion won (US$312.74 million) in the construction of the world’s largest biomass power plant in the U.K. However, due to delays in construction and operation, they had to write off over half of the invested funds, resulting in significant losses.
Based on reports from the financial investment and insurance sectors on July 31, it has been found that insurance companies that invested in the “NH-Amundi Europe Development General Discretionary Asset Investment Trust No. 1” created in 2017 by NH-Amundi Asset Management and Hana Securities have suffered valuation losses amounting to 60 percent of the principal.
The fund, jointly established by NH-Amundi Asset Management and Hana Securities, attracted a total of 8 insurance companies, including NH Life Insurance, Heungkuk Life & Fire Insurance, Samsung Fire & Marine Insurance, Mirae Asset Life Insurance, Lotte Insurance, and DGB Life Insurance, which collectively invested approximately 380 billion won in the form of “mezzanine (subordinated bonds).” An official from one of the participating insurance companies said, “We have marked around 60 percent of the principal as evaluation losses and other insurance companies have recognized similar proportions of losses. The losses could be recoverable if the power plant operates normally in the future.”
The MGT Project, responsible for building and operating the world’s largest biomass combined heat and power plant in the Port of Teesside of Northeast England, has been funded with a total of £888.3 million (approximately 1.3 trillion won). This significant investment comes from Macquarie, Danish pension funds, and domestic investors. The biomass power plant utilizes thermally decomposed plants or microorganisms as a renewable energy source to produce electricity.
Six years ago, domestic insurance companies made extensive investments in the MGT Project, primarily because Samsung C&T was involved in the construction, perceived as a less risky venture, and it promised an expected average annual return of 6 percent from 2020 onward. Unfortunately, the advent of the COVID-19 pandemic resulted in the delay of the power plant’s completion, and in 2021, the construction phase witnessed incidents of dust explosions and fire accidents.
The operator responsible for the U.K.’s largest biomass power plant project is currently considering filing a lawsuit for damages against the consortium, including Samsung C&T, for construction suspension and delays. Additionally, they are seeking additional funding for the operation of the power plant. NH-Amundi Asset Management, which established the fund, recently requested an additional investment of 27.6 billion won from the 8 insurance companies, and they all agreed to make contributions by the deadline on July 28.
These insurance companies are optimistic that by injecting more capital and ensuring the successful operation of the power plant, they can recover a significant portion of the previously recorded investment losses. An NH-Amundi Asset Management representative said, “We are confident that we can recover the investment once the power plant enters full operation as it has entered its pre-operational phase. We will make every effort to secure the power plant’s normal operation and investment recovery.”
Nevertheless, an expert familiar with overseas alternative investments pointed out, “As they have already invested hundreds of billions of won, they had no choice but to make additional bets on the restoration of the power plant. However, the prospects for recouping mezzanine loans are generally low, and ensuring stable profitability for a newly established power plant is no easy task.”