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 million premature deaths each year. Due to a lack of alternatives, households spend a lot of money 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 BURN Manufacturing Company (BURN Manufacturing) is countering these problems by producing 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 inception in 2011, BURN Manufacturing has established itself as the market leader in Kenya with over 4.1 million cooking appliances sold and is now looking to bring its climate-friendly products to the African continent. As a result, BURN Manufacturing plans to enter seven additional countries by 2024: Rwanda, Ghana, Uganda, Tanzania, Democratic Republic of Congo, Nigeria and Mozambique. As part of this, BURN Manufacturing is looking to expand its production capacity in Kenya, as well as invest in further development of its energy-efficient electric cooking solutions. Currently, the company has the capacity to produce 400,000 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 production expansion to improve the quality of life for millions of people.

BURN Manufacturing has already successfully completed two fundings on bettervest.com: In the first campaign, €334,550 was raised, and in the second campaign, €683,000 was raised to finance raw materials for cookstoves.

BURN Manufacturing’s business model actively contributes to 6 of the UN’s sustainable development goals.

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, 9.6 million tons of wood have already been saved from deforestation. At the same time, customers are able to save on fuel costs (target 8.4). BURN Manufacturing customers’ cost savings have accumulated to $683 million 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 17 million tons of CO2 emissions to date through its energy-efficient cookstoves.

BURN Manufacturing currently employs more than 2,500 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 large 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 million more cookstoves by 2027, saving an average of 12.8 million tons of CO2 per year. The crowdfunding campaign finances 7.3% of this. Accordingly, crowdfunding can save an average of 934,400 tons of CO2 and 671,600 tons of wood 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 is the first to receive an external default guarantee from a guarantee fund. The guarantee exists in favor of the issuing special purpose entity Burn Cook Stove Emissions UG (haftungsbeschränkt), which is independent of the Project Owner, and relates to the loan that the special purpose entity on-lends to the Project Owner (on-lending loan).

The guarantee comes into effect if the Project Owner defaults on repayment of the loan after the lender (SPV/bettervest) has initiated all reasonable recovery measures. Payments under the guarantee are subject to the terms and conditions of the applicable guarantee agreement. The guarantee covers a portion of the outstanding loan amount. The guarantee is not a first loss guarantee and is granted exclusively 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 are 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 Finished Goods: Pledge of goods worth 40% of the outstanding loan amount. These are higher value electric powered cook stoves which are spun off into a trust company based in Mauritius for the purpose of pledging.

(ii) CO2 allowances (VERs): In addition, the U.S. parent company, BURN Manufacturing Company, Vashon, 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 collateral relates to 100% of the outstanding loan amount.

In total, the book value of the collateral amounts to 140% of the outstanding loan amount.

d) Equity:

The equity of the Project Owner BMUKB amounted to 51% of total assets as of December 31, 2021.

BURN’s parent company in the U.S. received fresh equity of $2.2 million during the year, as well as $1 million through the conversion of an existing bond. For the current year, BURN expects to raise approximately USD 9 million in additional equity through the retention of earnings. In addition, the group is negotiating options with external investors that will allow it to increase equity via a capital increase in late 2022 and Q1 2023, if required. A large part of 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 equity, BURN received a total of $5.6 million in funding in the form of equity-like loans from Spark+ Africa Fund, Clean Cooking Alliance, and Energy Access Relief Fund in late May and June 2022. Payment of an additional USD 2.0 million is still outstanding this year.

g) Special Credit Agreement Subsidiary Agreements (“Financial Covenants”):

The following ancillary loan agreements between the lender Burn Cook Stove Emissions UG (haftungsbeschränkt) and debtor BMUKB were included in the on-lending loan:

From the 13th month to the end of the term, the leverage ratio, shall not exceed 2.0:1. The debt-equity ratio is defined in the contract as follows: (non-subordinated debt) / (equity + subordinated loan).
BMUKB’s debt service coverage ratio may not fall below a factor of 1.2 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% higher than the debt service BMUKB is required to pay on its total debt in those 4 quarters.

In addition, the disbursement of the loan is contractually conditioned on MBUKB’s equity being at least 35% of its total assets. This corresponds to a maximum debt-equity ratio of 1.86.

Investment requirements

In order to realize the expansion as well as the development of the production and the product range, BURN Manufacturing needs 7.6 million 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 will use the money to invest in the development and design of (new) products as well as in the expansion of production capacities.

Via crowdfunding, 2,266,300.00 euros (incl. fees) are to be collected, the remaining requirements will be covered by equity, grants and debt capital. The term of the loan is 5 years and has an annual interest rate of 6% p.a. for the crowd-investors. Investors who invest in the project within the first four weeks also receive an early bird bonus of 1% p.a. (i.e. a total of 7% p.a.).

The project is co-financed by the crowdfunding platforms bettervest and ROCKETS. This means that the project will be offered for funding on two platforms in parallel.

The funding threshold in 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 among the supporters with the highest investment amount and will be shipped to the winners if they are interested.

1. What is a default 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 cost of the guarantee is paid entirely by the SPV, which in turn charges it to the Project Owner.

On Feb. 1, 2023 at 5 p.m., the BURN Manufacturing project webinar was held. CEO Peter Scott and Ted Miller from BURN’s Finance Team presented the company and the project and answered the questions of the participants.

You can view the recording of the webinar here.