UPDATE 2-Trading Emissions culls dividend as carbon prices drop

Mon Oct 10, 2011 6:14am EDT

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* Estimates NAV per share at year-end will be at least 116P

* May have insufficient reserves available for future dividends

* To seek approval to re-register in the Isle of Man

* Shares fall 4.1 percent

By Adveith Nair

LONDON, Oct 10 (Reuters) - British clean-energy projects developer Trading Emissions said on Monday it will scrap its dividend given the continued drop in carbon prices, which had also forced it to abandon sale talks earlier this year.

Trading Emissions trades carbon offsets in a market in which rich countries pay developing nations to cut emissions on their behalf under the U.N.-backed Kyoto Protocol.

Its strategy was to exploit higher prices in the main demand market for offsets in the European Union's emissions trading scheme (EU ETS) compared with developing country projects.

However, EU carbon prices have gradually neared levels seen in the 2009 recession and are down 30 percent from the beginning of the year. Certified Emission Reductions (CER) are currently trading at about 7.8 euros .

"The carbon market requires that counterparties provide cash collateral against forward contracts up until delivery," the company said. "Accordingly, cash proceeds must be retained to ensure the company can meet working capital requirements."

The fall in prevailing carbon prices and, in turn, the value of its portfolio of carbon-related securities, could leave it with insufficient reserves to pay future dividends, Trading Emissions said on Monday.

The company declared a final dividend of 3.85 pence last year, for a total dividend of 5.5 pence per share.

Monday's news comes barely three months after the company halted talks to sell its carbon portfolio.

"The continuing weakness in the carbon price, dividend suspension and the absence of realisation progress means we cut our target price to 55 pence," Peel Hunt analyst Andrew Shepherd-Barron said.

Shares in the company were down 4.1 percent at 52.5 pence on Monday. The stock has fallen more than 35 percent in the past three months.

The company also said it would seek approval from shareholders at its Annual General Meeting in December to re-register under the Isle of Man Companies Act 2006.

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