HSBC and Calyon signed a landmark €33mn prepayment facility for trading company and supply chain manager Noble Group in June 2007. The transaction marks the first time that a pre-payment financing structure has been used for the purchase of carbon credits (CERs).

Under the terms of this facility, the lenders have extended €33mn to Noble, enabling it to buy certified emission rights (CERs) from Gujarat Fluorochemical (GFL), a public limited company in India.

“Structured trade finance (STF) usually deals with physical commodity offtake and performance risk, but here, rather than pre-paying goods, we are dealing with the future flow of an unconventional commodity,” remarks Jean-Franois Lambert, global head of structured trade finance at HSBC.

“We are delighted to win this award for this sophisticated transaction, as it epitomises the depth of our commitment to working with our customers to innovate and create financial and practical solutions that meet their needs.”

Jean-Baptiste Ciet, associate, Asia & Central Asia, structured commodity finance, at Calyon, further comments: “The transaction certainly constitutes a stepping stone for rolling out further such pre-payments in this nascent but potentially huge emissions market.”

Noble is a major player in CER trading having established its carbon credits business in mid 2005. It will be using the purchased CERs to provide its carbon team with a comfortable volume of credits with which to trade.

CERs are issued in return for a reduction of carbon emissions through projects that fall under the Kyoto Protocol’s Clean Development Mechanism.

GFL, which produces compounds used in refrigerators or air conditioners, was the first company to be certified to produce CERs by the United Nations Framework Convention on Climate Change (UNFCCC). It produces the CERs by capturing, storing and destroying ozone depleting gases. The credits can then be sold on to trading firms or companies, generally in the developed world, which can use them to offset their emissions, and therefore hit Kyoto targets for the reduction of harmful carbon dioxide.

GFL will be using the proceeds of the sale of CERs to invest in environmentally-friendly projects in the renewable energy sector. It has already invested US$35mn into a 23MW wind farm in Maharashtra in southwest India, which was commissioned in March 2007. It is also considering a further US$115mn investment in the next 12 months.

Structured as a typical STF deal, the key risk with this award-winning deal faced by the arrangers is performance risk. However, the added twist is that usually performance risk is judged on whether the supplier delivers the goods.

In this case, there is the additional complication of a specific procedure to validate and deliver the CERs, organised through regular audits arranged through the UNFCCC.

Despite the pioneering and challenging nature of the transaction, both banks took comfort in the fact it was working with experienced partners.

“We viewed positively the involvement of Noble Group in the deal, as the company has been a trustworthy name for many years. In addition, the well-established framework of the industry with the primary role led by the UN along with the quality of the Indian project and related company has been very supportive,” comments Ciet.

The deal also heralds further CER-related transactions as demand for carbon credits in industrialised countries increases, and appetite from European buyers grows due to constraints and obligations imposed by the Kyoto Protocol.

“We believe that provided there is a good understanding of the CER process and market, other opportunities are likely to arise,” remarks Lambert.

“As environmental constraints increasingly reshape the marketplace, new products will be developed. But, this also gives rise to new risks as well which will have to be well comprehended to create new opportunities beyond the conventional frontiers,” he concludes.


Deal Information:



Noble Group
Amount: €33mn
MLA and facility agent: HSBC
Joint MLA: Calyon
Tenor: 3.5 years
Law firm: Norton Rose (Singapore)
Signing date: June 2007