Saturday, 24 October 2020

John Milligan-Whyte: “We’re creating profitable green entities that solve problems”

By Chris Georgiou

An academic at heart, John Milligan-Whyte’s passion is finding problems and solving them in market-led sustainable ways no matter where they are or how big they are.

  • John Milligan-Whyte helped break the monopoly of corporate law knowledge in Bermuda by training and bringing disadvantaged ethnic groups into his law firm
  • Concerned over the development of the insurance industry in China, Milligan-Whyte is seeking to introduce the Green Earthquake Recovery Bonds, a green impact investing asset class that is designed to protect lower per capita income nations and people
  • The Climate Prosperity Enterprise model is set to attract sustainable green investment capital and target poverty alleviation in remote areas of China

As a legal expert, John Milligan-Whyte has written extensively about solutions to problems in the environment and society. But for them to really work, solutions need to be manifested through profitable corporate entities. He is creating corporations to demonstrate to investors and governments the innovative solutions needed to drive change, solving the problems of the government and the society and making large returns for impact investors.

“I was writing a textbook and realised this is not a textbook problem. This needs a company to implement it,” Milligan-Whyte commented on his latest venture.

This is a milestone year for Milligan-Whyte and his wife and business partner Dai Min, who are founding members of the newly established Green Finance Ltd, Climate Prosperity China Ltd and China Mutual Farmers Insurance Company Ltd. They are also co-founders of The China Impact Investing Foundation, a new nonprofit foundation being incorporated in New York that is set to affiliate with entities in China and seek to bring impact investing into the mainstream of investing in China and worldwide.

In 1984, prior to his focus in China, Milligan-Whyte and a partner started the law firm Milligan-Whyte & Smith in Bermuda. The island nation has one of the highest standards of living and one of the highest gross domestic product per capita incomes in the world, with a demographic of about 55% black ethnic background Bermudians.

“They essentially had little knowledge of corporate law as they had been excluded from it. So, we started a law firm based in Bermuda to create a ‘black Clifford Chance’. We hired foreigners that had worked in Clifford Chance and Linklaters who had some background teaching law and had been first or second in their class. We hired young Bermudians with very good values,” Milligan-Whyte explained.

According to Milligan-Whyte, the firm was asked to become a member of the World Economic Forum in 1991, acting on behalf of billionaires and multinational companies as a black international law firm.

“We broke the monopoly on corporate law knowledge, which had to be broken for the country’s economy to survive,” he stated.

In 1992, Milligan-Whyte started a venture capital firm. He shared that there were three banks that had a monopoly in Bermuda, which prevented the development of the securities industry. This prompted him to form four securities firms. He later sold these and broke the banks’ monopoly.

The law firm subsequently became a World Economic Forum (WEF) member in 1992. Ten years later, it became a co-recipient of the International Financial Law Review's Asian M&A Deal of the Year Award in 2002 for its advisory role in China Netcom's acquisition of assets of Asia Global Crossing, the first foreign acquisition by a Chinese state-owned company.

In 2007, Milligan-Whyte’s venture capital firm was selected as a participant in the WEF's Inaugural Meeting of New Champions.

The founder also authored several books, including one about the US-China relations entitled “China-US Relations in the Obama Administration: Facing Shared Challenges”, published in 2010 in English, which was then translated into Mandarin and published in China by the Central Party School.

Building a sustainable, commercially-funded financial catastrophe recovery system for China

With John’s subsequent high profile in China, he was brought a reinsurance agreement between a major Chinese Insurance Company and a leading global reinsurance company which he said, “didn’t actually transfer much risk”.

“I became concerned that the way the insurance and reinsurance industry was developing would not adequately meet China’s needs, which wouldn’t be clear to the government until 20 to 30 years into the process,” Milligan-Whyte noted.

The legal expert shared that “In 10 papers in The Ministry of Commerce’s magazine, China International Business, and for the Ministry of Finance’s China State Finance magazine, I developed a new framework for transferring China’s agriculture and catastrophe risk and became an advisor for the China Insurance Regulatory Commission and China Investment Corporation.”

“The State Council has to fund 3,000 counties’ catastrophe recovery. They want to find a way to transfer 15% of that in some commercial fashion. But it couldn’t be transferred using insurance as Chinese municipalities, businesses and people resist buying actuarially properly-priced catastrophe insurance,” Milligan-Whyte said, adding, “In the West, 40% of catastrophe recovery costs are paid for by insurance. In China, many of the major insurance companies are owned by the state so there is no risk transfer.”

Furthermore, Milligan-Whyte shared that in an era of massive climate change, the insurance and reinsurance companies “should not be writing catastrophe risk, as it can run into sudden losses of hundreds of billion dollars.”

“They don’t have the capital base and require government bailouts, long delays in paying claims and does not cover billions of Chinese that do not have catastrophe insurance,” he expounded.

In May 2015, the chairman of China Insurance Regulatory Commission asked Milligan-Whyte to work with Millman Inc, a global actuarial firm for a China catastrophe bond plan. Subsequently, Milligan-Whyte advised against a national catastrophe bond plan based on government funding losses and relying on the purchase of catastrophe insurance by Chinese government entities and consumers.

“We realised the solution was simple, but only if we formed an innovative new private company and issued this new type of Green Catastrophe Recovery Bond would State Council know there was a different way to commercially fund recovery from inevitable gigantic natural catastrophe losses,” Milligan-Whyte stated.

Along with his partners, he began developing commercially-funded catastrophe recovery solutions, such as the fintech Green Finance Ltd, which is creating Green Earthquake Recovery Bonds designed to fund environmentally and economically sustainable clean energy based on major earthquake recovery costs in China, Asian Infrastructure Investment Bank and Belt and Road nations.

“We are issuing the Green Catastrophe Recovery Bond and establishing Green Finance Ltd that is available to be acquired by the China Investment Cooperation or a group of sovereign wealth funds,” Milligan-Whyte shared. “We began talking to lots of investors and rejected all of them because they were not impact investors that understood the potential financial and social growth as well as goals of Green Finance Ltd, and would take the solution we developed and water the whisky until the customers complain. They would eliminate key features in the solution that would make it not work and discredit the validity of the solution.”

John Milligan-Whyte also shared what they found out, saying that the right sort of investors are family office and impact investors, prompting them to go ahead with the launch of Green Finance Ltd and the green finance catastrophe recovery finance industry, both in China and globally.

The Green Earthquake Recovery Bonds are designed for sophisticated institutional investors in the international capital markets. They are in addition to retail investment products to be sold in China at banks, securities firms and existing payment systems.

Exit strategies include being invested in or acquired by a private equity firm, bank, securities firm, initial public offering (IPO) or the China Investment Corporation and/or a group of sovereign wealth funds. However, insured losses caused by natural disasters worldwide was $71 billion in 2018, the 4th highest on record with about half of assets being challenged by investors’ willingness to go on.

Developing tools to import foreign and domestic investment capital to China’s remote regions

Milligan-Whyte, notwithstanding his strong insurance background, realised that he didn’t need to wait for a catastrophe to occur to make a difference. He decided to create another company called Climate Prosperity China Ltd, which will finance and build economically and environmentally sustainable, community-owned solar power as well as clean energy producing plants and supporting businesses.

The pilot project of the company is the Climate Prosperity Enterprise that focuses on poverty alleviation. In one Chinese county, 11,000 homes in 11 villages were built by the State Council for 60,000 people relocated from isolated mountain villages. China’s president Xi Jinping visited one of these villages in 2019.

Climate Prosperity China Ltd is seeking to partner with Green Finance Ltd and the local municipal government to ask for permission to sell the solar power energy generated by the Municipal Climate Prosperity Enterprise Ltd in a 25-year contract with the national grid.

“This initiative in China is modelled on a successful programme that occurred in Alaska in the 1970s, where the Alaskan native people received a settlement of $900 million for a pipeline built across their land without their permission,” Milligan-Whyte shared. “Instead of just giving to the community, with a poverty rate of 68%, the money was used to set up 200 community-owned corporations that have produced over $155 billion in revenue and over $43 billion in profits, and poverty has dropped from 68% to 16%.”

Michael Rowan, one of the founders of Green Finance Ltd, who was a civil servant in Alaska, developed the solution. Milligan-Whyte shared that Rowan and former US Ambassador to Denmark Richard Swett, who is also a founder, formed a similar company in the United States called Climate Prosperity Enterprise Solutions LLC. It creates environmentally and economically sustainable community-owned solar cities in Africa.

Inspired by such initiatives, the new project in China plans to use technology imported from the UK, which can store solar power and regulate solar power voltage. This will be the basis for Climate Prosperity China Ltd to issue a green bond that will fund the initial creation of the environmentally and economically sustainable solar-powered villages.

“One of Green Finance Ltd’s Chinese founders, a venture capitalist and whose former company was involved in the construction of foundations for skyscrapers, including in Beijing, has just completed his doctorate in green finance and construction engineering. We want to create a sustainable pilot project and scale it nationally in China and implement the Climate Prosperity Enterprise model globally,” Milligan-Whyte explained.

Climate Prosperity China Ltd is working with family offices, impact investors and strategic partners on the pilot project with the goal of a national implementation of the Climate Prosperity Enterprise model. Exit strategies include the sale to a private equity firm, construction conglomerate, sovereign wealth fund or an IPO.

“We are currently doing the A round capital raise, and family offices are really suited for this as they can make decisions and think long term. Venture funds think differently about even very profitable impact investing and publicly listed companies think short-term,” the legal expert and founder said.

The connection to the national grid will come a 25-year stream of income, which will pay for building the solar plant and establishing other businesses and public facilities needed in poverty alleviation or catastrophe recovery. To get the privately financed capital this year that will build the solar plant, Green Finance Ltd will issue a green bond in Hong Kong that is supported by the income of the solar power sale contract. Currently, they are looking for suitable Family Office A Round investors.

“The people benefit as the solar plant is owned by the village, and they get the funding to start the many businesses and public facilities that a village will need. These businesses cannot be sold except by being passed down to family members or back to the community-owned entity. Otherwise, someone would come in and buy them all, defeating the long-term poverty alleviation goal,” Milligan-Whyte explained.

John Milligan-Whyte endeavours to create sustainable poverty alleviation. This will be through Green Finance Ltd, which will fund the solar plant and houses with domestic Chinese and foreign capital and ensure that the people in the communities and local governments retain 90% ownership.

“We are in the business of solving major national problems,” the founder concluded.



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