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Turmoil knocks carbon note

Oct 27 2008 12:31 Marc Ashton

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Carbon credits: Safe haven?


Johannesburg - Cash seems to be the only true safe haven for investors as commodities such as gold continue to be sold down. Even the niche market carbon credit note, which was being billed as an alternative safe haven, can't entice investors to part with their cash. Despite this, fundamentals for the note remain sound according to the issuer.

On Friday morning, issuer Sterling Waterford announced via the stock exchange news service (Sens) that it would be going ahead with the listing of 300 000 carbon notes at the reduced price of €13. This was a far cry from the two million notes that the company had been targeting at the price of €15 per unit.

Gregor Patterson-Jones of Sterling Waterford said: "We initially had the undertaking for two million, but there has been a lot of uncertainty in the market place in recent weeks."

The company cited the sharp decline in the rand-euro exchange rate as a key reason for the under-subscription.

It has elected to split the offering into two tranches, with one tranche of 300 000 being listed now and the balance as economic conditions improve.

The carbon credit note allows South Africans to invest in the lucrative carbon credit market and enjoy the rand hedge characteristics of the instrument, without affecting their offshore allowances.

The carbon credit market is driven by demand for credits, which place a price on carbon emissions by major firms in both the developed and developing world. In essence, a price has been placed on pollution.

"In general, there has been a lot of focus on the general equity market and the institutional market is quite nervous at the moment," said Patterson-Jones.

Sound fundamentals

Despite this downturn in the market, Patterson-Jones believes that the fundamentals for the carbon market remain sound.

He pointed to the recent European Union (EU) summit where many European leaders, including French President Nicholas Sarkozy, reaffirmed a commitment to climate legislation.

This legislation is expected to continue to underpin to the demand for carbon credits.

ccording to Patterson-Jones, wide spreads in the pricing of the coal and oil markets have had a negative impact on the carbon market, but in general the demand for carbon projects remains strong across the globe.

Oil prices have declined sharply in recent months from highs of $120 a barrel to around $70 a barrel.

"We will see some ups and downs in the carbon market, but the fundamentals driving this market are not the same as those driving the economic and equity markets," said Patterson Jones.

- Fin24.com



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