The kind of credit you want

Finweek English Edition - - Companies & Markets - MARC HASEN­FUSS

CARE FOR A LISTED in­vest­ment that’s not cor­re­lated to gen­eral (and, lately, jit­tery) sen­ti­ment on the JSE and other ma­jor stock ex­changes?

Such beasts are rare – but it may be worth men­tion­ing that Ster­ling Water­ford next month opens of­fers on its sec­ond Car­bon Credit Note (CCN), ba­si­cally a car­bon de­riv­a­tive in­stru­ment that rep­re­sents a pre­paid for­ward con­tract in the hands of in­vestors.

There’s a phys­i­cal de­mand for CCNs by in­dus­trial com­pa­nies that pro­duce car­bon emis­sions in ex­cess of reg­u­lated norms. Nat­u­rally, if de­mand for CCNs in­crease, the par­tic­i­pants in the sec­ond CCN will be in the money.

Early in 2005 Ster­ling Water­ford is­sued its first CCN at US$9,90 (5641c). The in­stru­ment listed in April 2005 at $14 (8400c) and in June 2008 the pay­out on the ma­tured note was $24,17 (R195) – a nifty 250% rand re­turn for early bird in­vestors and 130% for in­vestors who bought the CCN on list­ing.

The sec­ond CCN will be listed in the fi­nal quar­ter of 2008 and ma­ture in 2012. Es­ti­mates show that roughly R18 000 should se­cure an in­vestor 100 CCNs.

Broadly speak­ing, CCNs are a good bet, with en­vi­ron­men­tal con­cerns grow­ing al­most on a daily ba­sis. The rat­i­fi­ca­tion of the Ky­oto pro­to­col by Rus­sia and the im­ple­men­ta­tion of the Euro­pean Union Emis­sions Trad­ing Scheme (EU ETS) in early 2005 markedly in­creased ac­tiv­ity in the CCN mar­ket.

One pos­si­ble at­trac­tion for SA in­vestors is that Ster­ling Water­ford’s sec­ond CNN is priced in euro rather than US dol­lars, which pla­cates con­cerns over long-term green­back weak­ness. That comes in the wake of the EU ETS, which largely dic­tates the car­bon mar­ket is in­creas­ingly priced in euro.

Nat­u­rally, Ster­ling Water­ford’s CCNs aren’t en­tirely without risk and should be seen main- ly as a port­fo­lio en­hanc­ing in­vest­ment in­stru­ment rather than a core in­vest­ment. How­ever, the in­stru­ment of­fers some cap­i­tal pro­tec­tion and is backed by a project port­fo­lio man­aged by BNP Paribas.

Adding a touch of green to the stan­dard in­vest­ment port­fo­lio may not be amiss.

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