Tiger finance, a banker's effort to fund survival

NEW YORK Wed Feb 16, 2011 9:46am EST

1 of 3. Stuart Bray is seen in central London January 18, 2011.

Credit: Reuters/Stefan Wermuth

NEW YORK (Reuters) - Stuart Bray, a City of London financier turned environmentalist, is using his fortune and skills to develop novel ways to fund conservation, starting with teaching tigers to hunt in the South African bush.

"The tigers have taken over my life," Bray said, describing the wonderment of the first chuffs, or friendly snorts, he had communicating with a tiger.

"It intellectually convinced me to work to save the environment. But I made my life in the markets and I am convinced I can do this through the markets," he said over tea recently in Beijing.

Eight years ago, Bray, an American working in the upper echelons of London finance, made an 11th-hour rescue of his Chinese-born wife's eco-tourism efforts to save the South China tiger after an acrimonious split with her business partners.

He quickly realized that picture-taking tourists were not going pay for a biologically diverse habitat big enough to maintain a healthy, wild tiger population.

He's testing that theory with a preserve he's cobbled together in South Africa to bring over South China tigers to live in the wild. In the process, he has upset the conservation establishment. Rather than donating to existing programs he is going it alone. His unprecedented plan is to use financial markets to save a sub species of his choosing.

Bray has poured nearly his entire personal fortune of $25 million into the effort despite slim odds for a rebound in the population of the South China tiger, one of nine types of tiger worldwide. Three of those sub-species are now extinct.

The soft-spoken former-Deutsche Bank structured finance expert believes sustainable development projects rather than the standard models of philanthropy will be the long-term solution to funding conservation projects.

He hopes to tap into growing global demand for environmentally-friendly investment.

"It became clear to me that a big part of the problem in conservation is finance... In conservation you tend to find people who are anti-business and it struck me as though they needed some business expertise," said a clean-cut Bray, dressed in his banker best before meeting with Chinese officials.

Conservation Finance International (CFI), solely owned by a trust Bray set up, is working to create a debt-free endowment for the tigers by leasing forests in China, harvesting the timber and selling securities backed by sale of the wood.

The firm estimates returns in the 10-12 percent range. Future financings may be backed by wind, water or solar.

The tigers will get a cut of the profits, once a team of 10, some with dual degrees in forestry and business, is paid.

"We pay our costs but not the sort of compensation that bankers are accustomed to and not the profit levels for ourselves that banks would expect," said Bray, who looks young for his middle-age.

"But we are willing to work hard and earn less money for something we think is important." said Bray, who met his wife Quan Li, a former executive at Gucci, while they were students at Wharton Business School.

JUST ANGRY

Conservationists may not have been enamored with Bray's idea, but neither were bankers who grappled with the financial crisis and the ensuing shut down of the global credit markets. This left his firm in limbo as few would listen to his "quirky" proposals to make money, save tigers and the environment.

"Everyone is so angry over the financial crisis that the banks have been pilloried and punished for doing things that were perceived as being too adventurist. This idea of ours is off-piste and has been made a lot harder," he said.

In the crisis, timber prices fell from $90 per cubic meter (m3) in early 2008 to well below $70 per m3 in Q1 2009, forestry consulting firm Wood Resources reported. Prices have recovered to $85 per m3 for cut conifer timber, or sawlogs.

A 2005 debt offering by Mandra Forestry, acquired last year by Sino-Forest, a Canadian company that is one of the few to operate in China, knocked Bray's plans off course.

Mandra issued a note carrying a 12 percent coupon, setting a new market benchmark that forced CFI to restructure its plans, squandering the interest of a major Swiss bank willing to underwrite a timber-backed securitisation.

"That kind of deal doesn't make sense for us," said Bray, referring to the high coupon costs.

Top investment banks and environmentally aware companies are sniffing around again for debt offering market rates with tradable carbon credits and environmental bragging rights.

Bray says he is close to completing $1 billion worth of financing with a major Wall Street bank. He declined to name it until the deal is closed. He is also in talks with European utilities.

"We are often able to put something together with pricing that is every bit as competitive with a simpler financing, but it is more complex and takes more effort and that's where the challenge is," Bray said.

YEAR OF THE TIGER

In November, during the now-completed Year of the Tiger, leaders from nations that host the world's last wild tigers pledged to work toward doubling their numbers by 2022. That's the next Year of the Tiger on the Chinese zodiac. There are roughly 3,200 wild tigers left, versus 100,000 a century ago.

According to Bray, less than 100 South China tigers, an 8,000 year old cultural symbol of China, exist in captivity. None have been officially verified in the wild in decades.

CFI and a team of conservationists assembled by Quan under the Save China's Tigers (SCT) banner have compromised on their ideal plans for one big preserve in China given limitations on space and the cost of moving people off of viable land.

SCT and CFI are seeking to create 20-40 separate reserves of 15,000 hectares each, putting a cost at $1 billion over a 20-30 year timeframe. The main expense is restoring the habitat and fencing in the land for reintroduced tigers.

FIERCE POLITICS

Mainstream conservationists are not impressed. The World Wildlife Fund thinks Bray and Quan are spending their money in the wrong place.

Sybille Klenzendorf, the WWF's managing director of species conservation, says SCT's money would be better put to saving Amur tigers. They have a larger wild population which still exists in their natural habitat on the China-Russia border.

She would sacrifice the South China tiger for now and push China to implement regulatory frameworks and enforcement.

"I would rather have them give (their money) to us than what they are doing, but that is their own choice," she said.

SCT bought and cleared 17 former sheep farms, creating a 33,000 hectare preserve in South Africa's Laohu Valley to test their efforts. Tigers brought from China and those born on the preserve, have learned to hunt. The land's biodiversity and stock of prey, like African antelope, have quickly recovered.

Chinese environmentalists are being trained to run future reserves on suitable land in south-central China for the reintroduction of "re-wilded" tigers, perhaps by year-end.

After years of close-calls and setbacks, including the death of a baby tiger, there is new hope. Financing deals look promising and a new female tiger was born in the last month.

Bray remains ever the pragmatic banker.

"The odds are good that we will make a meaningful difference in the environment and restoring biodiversity even if the tiger part fails," he said. "We need to innovate to solve these problems."

(Reporting by Daniel Bases; Editing by Andrew Hay)

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