REFILE-Carbon offset firms feel heat of price crash

Tue Nov 29, 2011 1:30pm EST

* Trading Emissions shares dive to all-time low

* Camco shares hit lowest since Feb. 2009

* U.N. CO2 credits have lost more than half value in 2011

By Nina Chestney and Jeff Coelho

LONDON, Nov 29 (Reuters) - Shares in firms set up to profit from efforts to curb pollution traded near all-time lows on Tuesday as the collapse of the carbon emissions market they depend on raised concerns about their future.

London-listed Trading Emissions Plc and Camco International back projects, often in poorer countries, that are aimed at cutting greenhouse gases.

They register the investments under a United Nations' backed scheme and can then sell the resulting "credits" to polluters in developed countries who need to show regulators they are contributing to a global push to reduce emissions.

Both companies also hold a portfolio of credits to fulfill obligations to polluters and other clients such as carbon funds.

Last week, the price of these certified emissions reductions (CERs) credits fell by 20 percent to below 5 euros ($6.68) per tonne.

CERs have lost over half their value this year as concerns mount over their role in a future global climate treaty, and as falling industrial production makes pollution targets easy to meet. Exacerbating this, a record number of CERs was issued to the market this year.

Trading Emissions' average acquisition price for the CERs in its portfolio was 6.71 euros, while Camco paid 8.60, company statements show. Traders say project developers would incur a loss if they sell at a price below 6 euros per CER.

"CERs are becoming like Greek bonds," said Laurent Segalen at London-based advisory firm Segalen Environment Partners.

"(Firms) that keep their nerve and have sufficient cash to weather the current storm will probably be better off in six to nine months. The ones that panic and try to exit (the market) will suffer massive losses," he said.

Both Trading Emissions and Camco said they have enough cash to ride out the current carbon price crash.

"Trading Emissions has sufficient capital to meet its carbon obligations in any carbon price environment," Simon Shaw, the firm's investment adviser, told Reuters.

In spite of low carbon prices, the company said it will continue to pursue buyers for both its carbon and private equity portfolios, declining to comment on bidders.

Trading Emissions reported a cash balance of 66 million pounds for the year ending in June 2011, down 28 percent from the previous year.

Last month, the firm suspended its dividend given the continued CER drop and four board members left.

Earlier this year, it was forced to scrap plans to sell its carbon portfolio, which should have given shareholders a return of 50 pence per share, after low carbon prices made it difficult to find buyers willing to pay what the firm wanted.

SHARES PLUMMET

Shares in Trading Emissions were at just under 35 pence on Tuesday, down 65 percent since floating on London's Alternative Investment Market in April 2005, shaving 44 million pounds off its market capitalisation of 135 million when the business was floated in 2005.

Camco closed at a 33-month low of 7.75 pence on Monday, 88 percent below the level it floated in April 2006, cutting its market cap to some 15 million pounds from 83 million in 2006.

The state of some project developers' finances is a reversal of fortune.

In 2009, JP Morgan beat off stiff competition to buy Ecosecurities for 123 million pounds, while in 2010 Barclays Capital bought Swedish firm Tricorona in a deal that valued the company at $159 million.

Although carbon prices have been falling steadily since June, panic selling drove CERs down by 20 percent last week alone and analysts worry about the knock-on effect of such sharp drops will have on some.

"Trading Emissions is in a trickier position (than Camco)," said Gus Hoschchild, alternative energy analyst at Mirabaud Securities LLP.

He noted that Camco had expanded with a profitable advisory arm and a waste-to-energy business in the United States.

Earlier this month, Camco warned that the decrease in carbon price may lead to downward revisions to income accrued for prior periods but said its outlook for the medium to long-term for "remains positive".

CASH

Low CER prices have forced other firms to reduce the value of their carbon portfolios.

Last month, Noble Group's chief executive resigned after a write-down of the firm's U.N. carbon portfolio plunged it into a $17 million loss in the third quarter, its first quarterly loss for over a decade.

The firm did not reveal how much its CER portfolio lost, but Bank of America Merrill Lynch estimated it at $80-100 million.

Meanwhile, UK-based Climate Change Capital, which operates a fund investing in CERs, said it has had discussions about "strategic partnerships" to allow it to raise new capital, but added it was nothing to do with current carbon prices.

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