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Trading Emissions Renegotiating Unprofitable Carbon Deals

Trading Emissions Plc is seeking to renegotiate unprofitable carbon offset purchase contracts and there are “encouraging” initial signs that Chinese sellers are taking a “pragmatic approach to the problem.”

The company has an unhedged exposure of 11 million metric tons of Certified Emission Reduction offsets, Trading Emissions said today in a statement distributed by the Regulatory News Service. They would be worth 41.3 million euros ($55.1 million) at today’s price of December credits of 3.75 euros a ton on the ICE Futures Europe exchange in London as of 4:55 p.m.

The carbon assets, created under the United Nations’ Clean Development Mechanism, have a “negative valuation” of 18 million pounds ($29 million), the company said, citing a report from a firm of accountants that it didn’t identify in the statement.

Shares in the London-based company have plunged 73 percent in the past year as the price of credits dropped because of oversupply in the European Union carbon market, which consumes most of the UN credits. The shares rose 2.7 percent today to 28.25 pence in London.

The company has cash of 62 million pounds and other assets of 140 million pounds, according to the statement. It has an outstanding bank guarantee to the World Bank for 20.8 million euros for industrial-gas carbon credits it is obliged to buy through the Umbrella Carbon Facility through 2014, Trading Emissions said.

In China, the so-called emissions factor for some power grids fell as much as 7.8 percent, curbing the number of credits created for the company, according to the statement.

‘Persistent Depressed Demand’

The greenhouse-gas credit price drop of 70 percent in the past year was caused by “persistent depressed demand” and the company is seeking to do everything that’s “lawfully available to it” to minimize its exposure, it said.

“Initial reception from many sellers has been positive, provided that, as part of the negotiations, the company agrees to purchase post-2012 CERs at an agreed discount to the market price at the time of delivery,” it said.

Trading Emissions had a loss of 127.7 million pounds, or 50.25 pence a share, for the six months through Dec. 31, as it wrote down the value of its inventory and assets, compared with a deficit of 1.4 million pounds, or 0.32 pence a share, in the year earlier period. Revenue more than doubled to 42.7 million pounds.

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