Circulate invests $6M in recycling firms in India, Indonesia

A socially responsible plastic waste investment firm backed by global resin suppliers and consumer brands is making its first investments in Asian plastics recycling companies.

But the fund, Circulate Capital, has had to shift gears as the coronavirus has upended its business plans.

The Singapore-based investment group said April 28 that it is putting $6 million into India's Lucro Plastecycle Private Ltd. and Indonesia's PT Tridi Oasis Group to help those companies scale up.

Circulate Capital, which has $106 million under management, plans more investments later this year. It targets companies in Asia addressing plastic waste and pollution but that may lack access to capital.

Lucro, in Mumbai, specializes in difficult-to-recycle flexible plastics such as film, while Tridi Oasis is a PET bottle recycler in Jakarta, making materials for packaging and textile applications.

"Lucro and Tridi Oasis are best-in-class operators working at the forefront of plastic recycling in India and Indonesia," said Circulate CEO Rob Kaplan. "Investment in the waste and recycling sector is needed now more than ever."

The UN Environment Program, for example, has urged governments to treat waste management as an essential service to help beat COVID-19, he said.

For its part, the pandemic has forced Circulate to put more emphasis on short-term needs among Asian recycling companies, Kaplan said.

"Our focus is on deploying capital as rapidly as possible and helping companies like Tridi Oasis and Lucro to not just grow and scale, but to weather COVID-19 and grow strong businesses as we come out of the crisis," he said. "Currently our strategy is really on that short-term health."

He said Circulate is working with about 10 other companies in the due diligence phase of potential funding, after looking at more than 200 firms, and hopes to have four or five investments by the end of the year.

It aims to invest about 20-25 percent of its $106 million in its first year, even as the pandemic has elevated shorter-term emergency needs alongside capital injections for growth, Kaplan said.

"We can't invest in a pre-COVID-19 business plan, based on pre-COVID-19 assumptions," he said. "So, we are redoubling our efforts to support our portfolio and pipeline by exploring options for short-term debt to cover working capital needs and also offering leadership coaching and support.

"These companies are the best in the region and we need them to survive and thrive if we want to achieve our goals," Kaplan said.

The fund is watching how consumer behavior and purchasing patterns change and expects a surge in single-use plastics from food delivery and medical waste.

"We know this will likely result in more pollution and we also know this can be a resource for local communities," Kaplan said.

Circulate calls its funding "catalytic capital" that aims to show other, potentially larger investors that funding plastics recycling companies in Asia "can generate competitive returns, while moving to solve the ocean plastic crisis."

Tridi Oasis is using the funds to help it move to a larger facility, said CEO Dian Kurniawati. The company opened in 2016 after seeing opportunities in Indonesia to take bottle waste and turn it into PET flake for new products.

"We are setting up a larger facility and will establish a new recycling line, which will help us increase our capacity," she said. "We are also conducting R&D into recycling other types of plastic."

She said Circulate is also helping the company with general technical assistance and crisis leadership training to adapt to changes from the pandemic.

"We are working with our suppliers to ensure that plastic waste is still collected so that we can continue to build circular economies and sustainable value chains, as we need effective waste management in order to survive COVID-19 and protect our communities and our oceans," she said.

Kurniawati said the company, which processed 60 million bottles in 2018 and has grown since, wants to work more closely with the fund's network. Investors in Circulate include Dow Inc., Chevron Phillips Chemical Co., PepsiCo Inc., Procter & Gamble Co., Danone, Unilever plc, Coca-Cola Co. and Chanel.

Tridi Oasis said growing demand for recycled PET in Indonesia has boosted business, and it said PET bottle recycling is well established there, even if the larger waste management supply chain is fragmented.

"The increase in demand for recycled PET materials from manufacturers has seen this sector mature quickly, including high levels of collection and separation of plastic bottles from other waste," she said, allowing the company to create materials with low levels of contamination.

Circulate said its investment in Tridi Oasis is 50 percent guaranteed by the U.S. Agency for International Development, which launched a $48 million "Clean Cities, Blue Ocean" program in mid-2019 to mitigate plastics in the environment and boost waste management in developing nations.

The other firm that Circulate is investing in, Lucro, buys flexible plastic film from manufacturers, retailers and others, including individuals who make a living collecting and selling scrap materials, said Managing Director Ujwal Desai.

"We focus on films and flexible plastic that many others avoid because we believe there is inherent, untapped value that can be realized by turning plastic waste into valuable products," he said.

Desai said the Mumbai-based company, which employs 120, will use the investment to expand capacity, product lines and collection centers, as well as get technical assistance from Circulate and better connect with global supply chains.

Lucro started eight years ago and has seen its business grow dramatically to more than 200 customers today, Desai said: "The opportunity in this space is significant."