Fortescue establishes capital arm in the US to fulfil Andrew Forrest’s green dream

US-based Fortescue Capital has been announced in order to attract global capital for founder Andrew Forrest’s green ambitions.

Fortescue Energy chief executive Mark Hutchinson and his boss, Andrew Forrest. Picture: AAP

Fortescue Metals Group plans to manage its own funding options for the hundreds of billions of dollars needed to make its green dream a reality, establishing an asset management and funding arm in New York.

The mining giant made the announcement it was establishing Fortescue Capital on Thursday, saying it had recruited a team in the US to attract investment into the company’s global green energy projects, tasked with finding co-investors for the multibillion-dollar capital investments.

Fortescue Capital will be led by former Riverstone Holdings executive Robert Tichio, as its managing partner, and the company said it would “complement the energy and metals internal corporate finance teams that already exist and work collaboratively to serve the shareholders of Fortescue”.

Fortescue has said it plans to make five final investment decisions on green energy projects by the end of 2023, and added on Thursday that it expected to hold equity stakes of 25 to 50 per cent in all of its green projects into the future, in association with third-party investors.

“Fortescue Capital is being developed as a fiduciary for third-party capital, which will complement the energy and metals corporate finance teams.”

The projects will be developed and managed by Fortescue Energy, the mining giant’s green energy arm, with profit distributions – when they eventuate – to be managed by Fortescue Capital.

The company said Mr Tichio would report to Fortescue Energy boss Mark Hutchinson, but would have a separate operating board – including Mr Hutchinson, Mr Tichio and Fortescue directors Jean Baderschneider and Mark Barnaba. The move appeared to be an ­effort to avoid involving third-party asset managers in its green energy projects, and recruit institutional investors – such as sovereign wealth and pension funds – directly through an entity ultimately controlled by Fortescue.

Fortescue Future Industries chief executive Mark Hutchinson.

Based on Fortescue’s announcement it is not clear whether the new subsidiary will hold all, some, or none of the equity in the projects in its own right.

In addition to external investors, now to be sourced through Fortescue Capital, the company has said it would fund the billions in capital needed to bring its green energy investments to fruition through debt that has no recourse to the Fortescue balance sheet.

If that position is maintained, it would suggest Fortescue Capital would ultimately control the separate vehicles that own the green energy projects – and Fortescue Energy, despite building and managing their operations, would also hold its stakes through the asset management arm.

If successful, Fortescue Capital could emerge as an investment manager for non-Fortescue controlled projects, delivering separate returns to the group by collecting management and investment fees – along the lines of Macquarie Infrastructure and Brookfield.

Fortescue also hinted its new asset management company could play a role in funding its own spending on the decarbonisation of its Pilbara mining operations, with Mr Hutchinson saying Fortescue Capital could be an “essential tool of engagement” for the company’s own plans.

“Fortescue is taking its global pipeline of green hydrogen and green ammonia projects to final investment decision, and in doing so has communicated our intention and desire to bring additional equity investors on board,” he said. “Further, Fortescue has previously communicated its planned investment to decarbonise its Pilbara operations, and we see Fortescue Capital as an essential tool of engagement as we embark on both missions.”

Mr Tichio’s team, tasked with finding partners for Fortescue’s initial raft of green energy projects, will include former BlackRock renewable energy portfolio manager Rael McNally, former JP Morgan banker Nathan Craig, and Jennifer Zarrilli, who joins Fortescue Capital from IT outsourcing and advisory company GM West.

The establishment of a funding arm such as Fortescue Capital is likely to answer some of the regular questions on how the group will fund its green ambitions.

But it will also add a fresh layer of corporate infrastructure on a company that is already racing against time to meet founder Andrew Forrest’s promise the company will be capable of exporting 15 million tonnes a year of green hydrogen by 2030.

Mr Hutchinson told analysts in October that he did not expect Fortescue’s first green energy projects to be in production until at least 2026, given the company will not close its financial structure for the initial raft for at least year after the final investment decision, and most would involve at least two years in construction.