Carbon credit financing persists with new benchmark

In August 2008, Standard Bank structured and distributed 5.8 million carbon credits in a tranched pool from nine clean development mechanism (CDM) projects in China managed by Camco International, a leading carbon asset developer. The bank also used an innovative commodity finance structure to provide a limited-recourse upfront payment to Camco of €15mn.

Camco has one of the world’s largest carbon credit portfolios. The company generates carbon credits by partnering with other companies to develop CDM projects that reduce greenhouse gas emissions. Camco then arranges the sale of and delivery of carbon credits to international buyers.

This particular financing package is considered one of the first structured commodity finance transactions based on carbon credit trade flows, and although there have been other structured carbon credit deals in recent years, this deal is considered a benchmark structure in the market.

The transaction involved the structuring of a number of Camco’s CDM projects in China into a tranched pool and the subsequent distribution of rights to shares of volumes of CERs [certified emission reduction credits] flowing from tranches in the pool.
Standard Bank was the end buyer’s counterparty and, as part of the structure, Camco received an advance payment of €15mn against future export flows of the Chinese CDM projects.

This innovative structure combines the sale of CERs with elements of classical structured commodity finance, tailored to provide the best solution for Camco and the end buyers.

Geoff Sinclair, global head, emissions structuring, sales and trading, at Standard Bank comments on the significance of this deal: “This deal is the first of its type in the carbon market and has a very innovative structure.

“It incorporates a number of legs including structuring and syndication of carbon credits from a pool of Chinese projects and completion of a financing transaction involving a number of trade finance concepts to provide an advance of €15mn.”

He adds: “The long tenor of the finance leg and integrating it with typical carbon trading contracts made this a complex transaction that required innovation and teamwork between the trade finance, documentation and carbon trading teams; the client; and DLA Piper and Baker & McKenzie as external counsel.”

The deal team managed to complete the transaction, from structuring and the syndication of the carbon credits to financial close, within just a month. This in itself is a recognisable achievement given the level of due diligence required and the bespoke nature of the deal documentation.

Camco has a wide and diversified portfolio of emission reduction projects, with CDM developments in Asia, Russia, Eastern Europe, the Middle East and the Americas. Project types can vary from biomass and biofuel projects, wind and small-scale hydropower deals to land-use and forestry projects. Camco has been a pioneer in the development of energy efficiency projects in China. For instance, it developed the capture and use of waste heat from cement clinkers in China.

Deal Information

Borrower: Camco International, Jersey
Amount: €15mn
Lead arranger: Standard Bank
Law firms: DLA Piper and Baker & McKenzie
Tenor: 4.5 years
Date signed: August 2008