A large proportion of people in sub-Saharan Africa rely on charcoal or firewood as an energy source for cooking, the combustion of which releases emissions that are harmful to health. According to the World Health Organization, smoke inhalation from cooking on open fires causes 3.8 mio. premature deaths each year. For lack of alternatives, households spend heavily to purchase these harmful fuels, for which they must pay $300 to $500 per year, depending on the region, type of wood, and price volatility. Entire forests are being cut down to meet demand.

Award-winning company BURN Manufacturing Company (BURN Manufacturing) is countering these problems by manufacturing energy-efficient cookstoves. At the company’s factory, which is located in Ruiru, Kenya, BURN Manufacturing produces resource-efficient cooking appliances that use less fuel than conventional cookstoves and produce up to 80% less smoke. This significantly minimizes health risks and provides high cost savings for customers who tend to be from poorer backgrounds.

Since its founding in 2011, BURN Manufacturing has established itself as the market leader in Kenya with over 1.6 mio. cooking appliances sold and now wants to make its climate-friendly products available to the African continent. As a result, BURN Manufacturing plans to enter the market in several additional countries by 2024 like Rwanda, Ghana, Uganda, Tanzania, Democratic Republic of Congo, Nigeria and Mozambique. As part of this, BURN Manufacturing aims to expand its production capacity in Kenya, as well as invest in the further development of its energy-efficient electric cooking solutions. Currently, the company has the capacity to produce over 200,000 cookstoves per month. This is expected to increase to 500,000 units per month by mid-2024. This funding will therefore finance BURN Manufacturing’s business expansion and the expansion of production to improve the quality of life of one mio. people.

BURN Manufacturing has already successfully completed two fundings on bettervest.com. The first campaign raised €336,700 and the second one 666,700 EUR to fund raw materials for the cookstoves.

BURN Manufacturing’s business model actively contributes to 6 of the UN’s sustainable development goals („SDGs“):

The resource-efficient cookstoves reduce fuel consumption by 39%, increasing energy efficiency (Goal 7.3) and cutting down fewer trees (Goal 15.2). Since the first so-called jikokoas (Swahili for “cook stove” and “save”) were sold in 2013, 6.1 mio. tons of wood have already been saved from deforestation. At the same time, customers are able to save on fuel costs (Objective 8.4). BURN Manufacturing customers’ cost savings have accumulated to $468.8 mio. since 2013.

The use of the efficient cookstoves also reduces health hazards such as indoor air pollution that can cause respiratory illnesses (Goal 3.9). Reduced fossil fuel use also results in lower CO2 emissions (Goal 13), helping to combat climate change. BURN Manufacturing has been able to avoid 10.9 mio. tons of CO2 emissions to date due to its energy-efficient cookstoves.

BURN Manufacturing currently employs more than 1,000 people, approximately 50% of whom are women, and supports women in taking positions that are traditionally “for men only” (Goal 5.1).

The use of the efficient cookstoves saves fuel, which at the same time creates a great potential for CO2 savings. On average, a BURN cookstove saves 3.2 tons of CO2 and 2.3 tons of wood per year. Thus, indoor air pollution is reduced by 60% when using a cookstove. The expansion is expected to sell 20 mio. more cookstoves in the next five years until 2027, saving 12.8 mio. tons of CO2 per year on average. The crowdfunding campaign will finance 7.3% of this and thus save an average of 934,400 tons of CO2 per year.

The investment risks associated with the subordinated loan are described in detail in the VIB under item 5 and in the risk notes. With a view to assessing and limiting the risks for investors*, the issuer draws attention to the following special features in the design of the project:

a) External default guarantee
This project will be the first to have an external default guarantee from a guarantee fund. The guarantee exists in favour of the issuing SPV, a special purpose vehicle independent of the project owner, and relates to the loan that the SPV uses to on-lend the funds provided by the Crowd to the project owner.
The guarantee takes effect in the event of default on repayment of the loan by the project owner after all reasonable recovery measures have been put in place by the Lender (SPV/bettervest). Payments under the guarantee are subject to the terms and conditions of the relevant guarantee agreement. The guarantee covers partially the outstanding loan capital. The Guarantee is not a first loss guarantee and is provided strictly on the basis of True Risk Sharing by the Lender (SPV/Bettervest). Political risks are not covered by the guarantee. The costs and fees associated with the guarantee in favor of the Guarantor will be borne by bettervest.

You can find our blog post on the general topic of “default guarantees” here.

b) Use of a special purpose vehicle:
For the crowdfunding campaign on bettervest, a special purpose entity called Burn Cook Stove Emissions UG (haftungsbeschränkt) was established. Burn Cook Stove Emissions UG (haftungsbeschränkt) acts as the borrower and is based in Germany. It forwards the collected capital as a secured loan to the company in Kenya, BURN Manufacturing USA LLC Kenya Branch (BMUKB) and does not engage in any other business activities during the entire term of the loan. The shareholders and directors of Burn Cook Stove Emissions UG (haftungsbeschränkt) are independent of BMUKB. In addition, Burn Cook Stove Emissions UG (haftungsbeschränkt) has a liquidity buffer of 25,000 euros of the money raised in the crowdfunding. The liquidity buffer serves as a financial cushion for any necessary measures in the event that BMUKB does not meet its payment obligations.

c) Collateralization of the on-lending loan:
The on-lending loan from Burn Cook Stove Emissions UG (haftungsbeschränkt) to BMUKB is secured by the following assets:

(i) Inventory of completed products.
The collateral relates to 40% of the outstanding loan amount. These are higher quality electric powered cooking stoves, which are spun off for the purpose of pledging into a trust company based in Mauritius.
(ii) CO2 certificates (VERs):
In addition, the parent company in USA BURN Manufacturing Company, Washington State pledges CO2 allowances, known as Voluntary Emission Reductions (VERs), credited to the U.S. parent company in the course of BMUKB’s manufacturing and marketing of cookstoves in Africa. This security relates to 100% of the outstanding loan amount.

d) Special Credit Agreement Ancillary Covenants (“Financial Covenants”):
The following ancillary credit agreement covenants between creditor Burn Cook Stove Emissions UG (haftungsbeschränkt) and debtor BMUKB were included in the on-lending loan:

(i) BMUKB’s debt service coverage ratio shall not exceed 2.5:1 for the first 12 months of the contractual term, and shall not exceed 2.0:1 from the 13th month until the end of the contractual term. The debt service coverage ratio is defined in the agreement as follows: (non-subordinated debt) / (equity + subordinated loan).
(ii) BMUKB’s debt service coverage ratio shall not fall below a factor of 1.2x during the entire term of the loan. That is, in the 4 quarters prior to the maturity of each annuity payment, the cash flow available for servicing the company’s debt must be at least 20% greater than the debt service BMUKB is required to pay on its total debt in those 4 quarters.

e) Equity:
BURN shall provide the Trust Company in Mauritius with equity equal to 10% of the issue amount. Disbursement of the on-lending loan will only be made upon presentation of proof of receipt of payment of the corresponding equity amount.

In May of this year, BURN’s parent company in the USA received fresh equity in the amount of USD 2.2 mio. Another capital increase of USD 5 mio. is planned for December this year with the Option for further 5 mio. USD in the first quarter of 2023. The funds will be invested in BMUKB. Thus, they strengthen the financial power of the borrower vis-à-vis the issuer of the crowdfunded loan.

f) Subordinated loan:
To supplement its equity, BURN received a total of US$4 mio. in funding from Spark+ Africa Fund in the form of equity-like loans at the end of May 2022.

Spark+ Africa Fund is a $70 mio. investment fund that finances companies providing next-generation distributed energy solutions to the mass market in sub-Saharan Africa.

The fund invests debt and mezzanine capital in leading companies along the value chain of various cooking fuels such as liquefied petroleum gas (LPG), biofuels such as ethanol and pellets, electrical appliances, and efficient biomass stoves.

Spark+ is the first fund of Luxembourg-based Spark+ General Partner Sàrl, a joint venture between the fund’s exclusive advisor, Swiss impact investment consultancy Enabling Qapital, and the Dutch foundation Stichting Modern Cooking.

Investment needs

In order to realize the expansion as well as the development of the production and the product range, BURN Manufacturing needs 7.6 Mio. Euros. On the one hand, this will finance the market expansion into seven African countries and the associated measures such as sales, marketing, logistics and administration. On the other hand, BURN Manufacturing uses the money to invest in the development and design of (new) products as well as in the expansion of production capacities.
Through crowdfunding, 2,266,300.00 euros (including fees) are to be collected, the remaining needs will be covered by equity, grants and debt. The project is co-financed by the crowdfunding platforms bettervest and GREEN ROCKET. This means that the project will be offered for financing on two platforms in parallel.
The term of the loan is 5 years and has an annual interest rate of 6% for the crowd-investors. Investors who invest in the project within the first four weeks also receive an early bird bonus of 1% (i.e. a total of 7%). The funding threshold for this project is 50,000 euros. If only this amount is reached, the project owner will fund the rest from other sources and carry out the project.

Repayment
The loan will be repaid from cash generated by BURN Manufacturing through the sale of the cookstoves and CO2 certificates (Voluntary Emission Reductions (VERs)).

Want to try the BURN cookstove for yourself? BURN Manufacturing has made 5 of their energy-efficient cookstoves available for a raffle among bettervest investors. The cookstoves will be raffled off among the supporters with the highest investment amount and sent to the winners if they are interested.

1. What is a partial guarantee?

We have created a detailed blog post on the topic of default guarantees, which you can access here.

2. Do I, as an investor, have additional costs due to the guarantee?

No. The costs of the guarantee are paid in full by the special purpose vehicle, which in turn invoices the project owner.