The World’s Quietest $5B Company Opens Up

Portrait of a strategic partner: Vijay Goradia and his Vinmar Group, expanding in renewable chemicals with a series of major offtake and strategic deals, open up about targets and goals in renewables. 

Last July, BioAmber announced a stunning 210,000 ton per year take-or-pay contract for bio-based succinic acid with Vinmar International.

For a renewable chemicals project, it was literally “business-making” deal size. The Vinmar take-or-pay contract, together with the take-or-pay agreement signed in April 2014 with PTTMCC Biochem (a joint venture between Mitsubishi Chemical and PTT of Thailand), guaranteed the sale of 50% of the Sarnia plant capacity during the first three years of operation and 33% of plant capacity for the following 12 years.

It built upon a relationship between Vinmar and BioAmber that had been growing for some time, and broadened the scope of a previously announced 100,000 ton per year 1,4 butanediol (BDO) plant, which the parties currently plan to start up in late 2017.  Under that agreement, following the financing, construction and commissioning of the BDO plant, Vinmar committed to purchase 100% of the BDO produced for 15 years.

Vinmar also committed to off-take 150,000 tons per year from a new, third plant following its financing, construction and commissioning. And Vinmar plans to invest at least 10% of the equity in this third plant, which BioAmber expects to start up in late 2020, based on the projected development of the succinic acid market.

That’s an awful lot of biobased succinic acid, and it made a lot of people ask, who exactly is Vinmar?

The short answer is that Vinmar Group is a congregate of three companies initially founded in 1978, with each operating independently yet in close association with the executive management team. Sales today are in the $5 billion range. And there’s a strategic equity arm, Goradia Capital, which combines substantial capital availability with the speed of an entrepreneurial company, combined with no outside investors or fund constraints.

To learn more about Vinmar, we went to the source — the company’s CEO and founder, Vijay Goradia, who spent time with us this week as we recorded a memorable interview, which follows.

BD: How did you start in the business?

VG: I came to this country in 1978, and started a polymers distribution business out of New York City. When I started, I had no money, no contacts, and no benefactor. I started distributing polymers into South Asia and onto the Middle East then Africa. Then we grew over the years into many markets.

BD: Why did you turn to this sector?

VG: My family in India had been in the polymer conversion business making plastic products for many years. I had had a little exposure to that when going to school and worked then for my Dad and then I started my own company in polymer conversion.

I came to this country really to study music, and I tried to get a scholarship and but that didn’t work, turned out I wasn’t that good a musician. At the time I didn’t have money to rent an apartment. I had a lot of time, and I was living in a friend’s apartment. So, I started making phone calls.

BD: Then it started taking off.

VG: Over time we kept adding more polymers, then the building blocks — aromatics, olefins and then the intermediate chemicals. It was a natural progression. I started with South Asia first, in those days, some large US producers, did not see the markets as their core markets. They were happy to use intermediaries like themselves. When they saw us doing a good job for them, they asked if we would expand our geography that was non-core to them. We said sure.

We took on a number of countries, and then many set up production facilities in other countries – they started supplying product to us from those countries. Many of these polymer producers also produced chemicals business and they asked if we could sell their chemicals. We were happy to do so. As their capacities grew, we kept growing.

BD: How did it work, then?

VG: Essentially, we represented (still do) US companies as their marketing extension in the emerging markets — and China, then, was just emerging. We did it in a transparent manner, where the producers knew exactly where we were shipping and to whom we were selling. To a producer, it was almost an FOB plant sale. We would take on credit risk, market risk, and do it all in a very cost effective manner. So, the producer didn’t have to replicate these functions.

BD: As many of them expanded, they started building plants in emerging markets themselves, especially in Asia. How did that impact you?

VG:  To be frank, what we found in many emerging markets – as local producers emerged and local and regional production expanded, that local production actually spurred even greater consumption. Over the last 40 odd years, we’ve seen the consumption in emerging markets rose as much as twice the GDP rate. So, as they built their own plants, for base polymers and chemicals, the production rose very quickly and they still had to keep importing. In that sense, it was an opportunity.

Also, in many of these countries in emerging areas, they started out using simple basic commodity materials, making shopping bags and so on, but over time they became more sophisticated, using better stuff whether it was for longer shelf life or better durability and so on.

And so we saw that progression taking place. As a result, if we lost on base or commodity polymers, we made up for it with more value-added polymers and chemicals.

BD: What are sales today?

VG: Last year, sales were close to $5B. We do business in over 110 countries. But we do it in a low profile way, we don’t brag about it.

BD: How did you become interested in renewables?

VG: Over the years, we have been tracking what’s going on the sector. At one stage, we invested in a biodiesel plant in Indonesia. The business didn’t do well.

There’s a definitely a future for Biofuels. But there’s an even better future for chemicals and polymers, provided that the companies do not focus on anything that is consumed by human beings. In that case, there’s a lot of price volatility and the cost might not be sustainable.

BD: Did you see an opportunity to replicate your model, as sustainable molecules came along?

VG: Over the last few years we have been in contact with a number of companies, primarily the US, and have had discussions. A few things came to the fore. One was that most companies are independents, not part of a very large conglomerate or a very large established company. These independents are very good at developing molecules and technologies, but very few have experience in commercialization.

So when ready to commercialize, they hire a few marketing and business development guys. They may have had the background to develop a marketing strategy, but they work with a limited number of large US, European and maybe Japanese users, so these independents are generally at the mercy of these suppliers. Their marketing policies revolve around satisfying the needs of the large users. Now typically, these large companies hedge their bets, they are very deliberate and slow and sometimes string more than one company along.

BD: And financing is a problem for them, too. 

VG: When it’s time to commercialize and scale up — both equity and debt, as you know, there’s not a lot of money available to fund the debt. Whatever is available, the equity investor and the lender want to know who will buy the product and how long it will take to sell out the whole plant.

That’s where we come into the picture. We expand the reach beyond 2-3 geographies and a hand full of customers, and we shorten the whole commercialization phase. And we undertake to offtake the whole production for at least the whole of the loan period, which is usually 7-10 years. Now the company can focus on their core competencies, to keep improving the technology, production and reducing the cost.

BD: But you bring other assets to a partner.

VG: We also have a project group, that consists of people like Terry Reynolds. Project guys, who have a deep understanding of how to select an EPC contractor, how to negotiate EPC contracts, how to cut down on the time period and the cost, and also in negotiating with other service providers such as utilities. We don’t do this as a consultant, charging fees. We offer all this including help with raising finance.

We only make money when the plant starts up commercially, and then we market their product. In doing so, the company gets an unbiased, unvarnished assistance. We don’t have any preference in terms of an EPC contact service provider or lender. We offer all these services, and selectively offer to take equity in these companies when they are commercially ready to scale up.

BD: For now, your focus is on late stage renewable chemical companies?

VG: Biofuels is not something we want to focus on. We also don’t focus on companies still perfecting their technology and do not have at least a demo plant. We don’t bring value to them at that stage. We bring it once they have demonstrated their technology and economic viability on a demo plant and are now ready to scale up.

BD: How strong is the demand for renewable chemicals?

VG: Obviously our customers, especially in North America and Europe were starting to take notice, but it wasn’t groundswell of demand. But having been long enough in the business, our team felt that things were moving rapidly enough that at some stage it would reach an inflection point. We like to stay ahead of the game, by getting involved early on.

BD: To what extent are companies looking to address cost volatility with renewables, and to what extent to reduce their carbon footprint?

VG: Whether it’s a Walmart or P&G, they are looking for what I call the 4 P’s, Performance, Price, Public Relations and Politically correct.

BD: Is that the same in all countries? How has the view changed, if at all, with lower oil prices?

VG: Developed countries are obviously ahead of the game. Emerging markets are usually 3 to 7 years behind the developed countries in adopting change, American, European, and Japanese customers usually take the lead in these initiatives, especially our European customers. The current crude oil price has certainly dampened their appetite for renewable. But that means they are slowing down a bit, they are more cautious. But there is a general feeling that oil prices will rise and stabilize between 70 and 80 dollars in a year or so. And at those levels some companies and some bio-renewable will be affordable.

BD: Vinmar has become well known in the renewables world with the BioAmber deal, where you contracted for offtakes for succininc acid from several plants. Is that the model you’ll pursue elsewhere?

VG: BioAmber, that’s certainly the model we are pursuing and would like to pursue. We are currently in discussion with a couple of companies. We want to be doing more, and figure out a way to do more. BioAmber — that’s the model we would like to pursue.

BD: What do you see as the challenges moving forward?

VG: I guess we have at least 2 or 3 challenges moving forward in this space.

One is to decide on which of the different chemicals and polymers we want to pursue, which are the base molecules we ought to look at.

Another challenge is to try to figure out which companies have the best chance of succeeding. For example, in the bio succinic space there are least five other players at different stages of development, and we’ve talked with three and had detailed discussions, and we selected the one that we felt had the best prospects. Not to say others won’t make it, but we felt BioAmber had the best prospects.

Third, understanding where they are in their evolution. We don’t provide much value in the research and development phase. Once they have a demo plant and can scale up, that’s the right time for us.