Tykač Has Given Up on Europe. He Plans to Invest in America, Asia, and Australia.

Seznam Zprávy Byznys, interview with Zuzana Kubátová, June 26 2024                  Link to the original article

The Green Deal May Slow Down, Lithium Euphoria Fades. Billionaire Pavel Tykač Sticks to His Existing Investment Strategy, Betting Heavily on Fossil Fuels. Alan Svoboda, CEO of Sev.en GI, Discusses the Group's International Expansion.

Pavel Tykač, the fourth richest Czech, continues his international expansion. He’s opening a business office in New York and building an acquisition team there. In addition to the U.S., he’s exploring investment opportunities in Canada and Australia, and this year has entered the Asian market. His main interests remain coal, but also oil, gas, iron ore, energy, and steel.

"We’ve somewhat given up on Europe," says Alan Svoboda in a podcast interview for SZ Byznys Agenda. Svoboda is the CEO of Sev.en Global Investments, which manages Tykač's international assets and oversees further acquisitions.

With the European elections, there's talk of slowing down the Green Deal. If that happens, would it change the investment climate in Europe?

Voters across the European Union have given politicians an interesting report card. It’s clear that people don’t want extremes; they want politics to be reasonable, not ideological. I think this could now prevail in Europe, creating a more favorable investment environment. Business based on subsidies, supports, and regulations is always risky.

Besides politics and regulations, the investment environment is also affected by banks and funds, which increasingly refuse to finance fossil assets—including coal mining and energy, areas in which Sev.en specializes.

How do you see this trend continuing?

There’s definitely an ideological approach dominating the financing landscape. Year after year, the taps are being tightened, which is impacting the business. Power plants, mines, and steel mills are suffering. They lack the capital needed for development and miss out on strategic owners willing to support these sectors as long as they’re still necessary.

Coal in Europe Will End

Coal-fired energy still holds significance in the European Union, but essentially only in four countries—Czechia, Poland, Germany, and Bulgaria. How long will it survive?

I believe that across the European Union, there will gradually be a transformation, with coal being replaced by other sources. Power grids will connect so that electricity can flow smoothly across borders and balance out disparities. Renewable energy from areas where it makes sense to build will then supply power to places that currently rely on coal or gas. And I believe that large-scale energy storage will eventually emerge to balance out differences in production and consumption.

But there's still some way to go. It’s crucial that we don’t create more obstacles than necessary on that journey. It needs to be quick and as affordable as possible for consumers.

Europe has set a goal to become climate neutral by 2050. It’s the most ambitious decarbonization target among the world's major economies. Is that realistic?

We won’t achieve net-zero carbon emissions with the technologies that are currently industrially viable. It’s a bet on new technologies that will replace the current methods of producing steel, chemicals, and electricity, as well as transportation methods. That ambitious plan can’t be rushed; we can’t just leap straight to the finish line with the means we have today.

Giving Up on Europe

In recent years, you’ve invested outside of Europe. You have significant assets in the U.S., Australia, and recently bought a power plant in Vietnam. Are you considering a return to the European market?

Honestly, we gave up on Europe a few years ago. The Green Deal was being pushed forward almost without regard to its consequences, along with uncertain regulations and a volatile political environment. For us, the situation is much more favorable in Australia and America, where there are investment opportunities and where we have a solid base. We have a team in Sydney, Australia. Similarly, we’re building up our presence in America; we're opening an office in New York and hiring people. Europe ranks third in our priorities.

Do you have specific acquisition plans in the U.S. and Australia?

The energy sector is indeed transforming region by region, and this transformation will eventually reach the steel industry too. But we anticipate that coal for the steel industry will be needed much longer than coal for energy production. We’re also looking at Canada, which is a huge market. We see growth opportunities in mining, energy, and steelmaking, and we’re exploring opportunities in oil and gas extraction, as well as in subsequent distribution and processing. That’s why we’re strengthening our presence in America.

You previously mentioned an interest in mining resources needed for the decarbonization process, like lithium. How do you view this sector today?

Prices for battery materials swing wildly—sometimes they’re at massive highs, and at other times they collapse when interest in electric vehicles wanes. It's heavily influenced by policy developments. At one point, car manufacturers jumped on the electric vehicle bandwagon, but now they see that these cars aren’t selling as well, and they realize they need to slow down.

Suppliers of battery raw materials, as well as other components, sense that the transportation transformation will be slower. There was a huge rush to invest in new deposits and mining capacities, but now that’s all fading away. So I wouldn't want to make any promises about whether we'll enter this sector.

Uncertain Czech Lithium

By the way, how do you see the prospects for lithium mining in Czechia at Cínovec in this context?

I’m not familiar with the economics of that project, but we’ve looked at other projects around the world. In places that looked promising just a year ago, the economics no longer work out. It’s possible that the Czech project might meet a similar fate. But I don't know the details—take this as a comparison to what we’re seeing elsewhere globally.

You recently entered Vietnam, where you bought a stake in a power plant. Do you see opportunities for further expansion there?

Vietnam is a very interesting country. It’s developing rapidly, with GDP growth, and its people are highly motivated. It’s an alternative to investments in China. Although Vietnam could be labeled as a communist country, it doesn’t discourage business; on the contrary, it attracts foreign capital. They need infrastructure, electricity, and raw materials. For us, this investment is a gateway to explore further opportunities in Vietnam, as well as in the broader region—in India, China, and possibly the rest of Asia.

How do you choose locations for expansion?

We focus on countries with stable legal environments and transparency. We don’t gamble on risk premiums in countries where it's uncertain whether you’ll retain ownership of your assets or be able to reinvest your earnings elsewhere. We’re cautious, so we’ll always consider whether to strengthen our position in America rather than opening a new investment front. Even so, we’re looking at projects in several African countries, but so far, the prevailing opinion has been that instead of taking risks there, we’d rather go for something we’re more familiar with.

How do you finance the acquisition of fossil assets when banks and investment funds are reluctant to fund them?

These investments have relatively quick paybacks, so you get your money back within a few years. We use our own capital—equity. Often, we manage to buy businesses that are still burdened with debt from when they were built. That’s the case with the Vietnamese power plant, where the debt will be repaid from the revenues set out in long-term contracts. When refinancing is necessary, we find that regular banks are often hesitant to get involved. That’s when private capital comes into play. Private investors see an opportunity to provide loans at high interest rates, so sometimes, when we need to bridge a short period, we turn to such instruments. But most acquisitions are based on getting quick returns.

What’s the outlook for Pavel Tykač’s business in the Czech Republic? Mining at one of his mines is winding down, and for economic reasons, he may close coal-fired power plants within a year.

We always say that we’re the last investor in line, the one who will switch off the lights at the end and move on. But we’re also a responsible investor who will clean up after ourselves. I just hope that today’s market signals, suggesting that coal-fired energy isn’t needed, aren’t somewhat misleading.

The electricity prices being traded on the market for the coming years may not be a good indicator of what the situation will actually be like. Whether there will be enough green electricity that coal-fired power plants won’t be needed. Whether another energy crisis might occur. Whether each country should keep some safety nets in play. That’s the only thing that puzzles me. But I don't focus much on Czech issues, so don't take this as the opinion of a manager responsible for this agenda—more as a citizen’s view.

Your sister group, Sev.en Česká energie, has already announced plans to invest in renewable power plants, battery storage, and hydrogen in Czechia. Are you genuinely interested in this sector as investors, or are you more looking to take advantage of subsidies available for these projects?

I don’t think these subsidies are particularly generous in Czechia. But as part of reclamation efforts, many green projects make sense—it just needs to be well-assessed. I was just talking to an acquaintance who ventured into building a large solar power plant on the roofs of his warehouses when electricity prices were high. Now he’s regretting it. By the time he finally got it up and running after all the struggles, he found out that no one wants to buy this electricity from him, and the project will never pay off—even with the subsidies he received. It’s important to understand the motivation behind who invests. For us, it’s primarily about cleaning up and leaving behind a clean environment.