LONDON JP Morgan's acquisition of clean energy project developer EcoSecurities will help its clients manage commodity price risks, even if the investment has a shelf life of only three years, JP Morgan's head of global commodities said.
A 105 pence per share offer by Carbon Acquisition Company, a wholly-owned subsidiary of JP Morgan, was declared unconditional on Monday after reaching shareholder acceptances of over 80 percent. The offer values EcoSecurities at 129 million pounds ($211 million).
Blythe Masters said the decision to buy EcoSecurities was based on its large pre-2012 portfolio of carbon offsets (estimated in August at around 100 million tonnes), its post-2012 portfolio (around 125 million) and any upside associated with a surge in carbon prices.
"Even if only the first source of value inherent in our valuation of the company, i.e. its pre-2012 portfolio, were the only thing to come forth we would end up being very happy with our acquisition," Masters said in an interview late on Monday.
EcoSecurities invests in clean energy projects registered under the Kyoto Protocol's Clean Development Mechanism (CDM).
But with the Kyoto Protocol set to expire at the end of 2012, investors, already shaken by the global economic downturn, are moving to the sidelines while policymakers scramble to agree a successor treaty.
Under this $6.5 billion CDM, companies invest in projects in emerging nations like China and India, and receive offset credits called Certified Emissions Reductions (CERs) that can be sold for profit to firms looking to meet emissions targets.
CER prices hit a 2009 high of nearly 14 euros ($20.68) a tonne last Friday, but are still well below their all-time high of over 23 euros hit in July 2008.
Masters said the acquisition would help JP Morgan clients better manage risks in fluctuating commodity prices.
"The reason for our expanding in the carbon space is consistent with our overall thesis that commodity markets as a whole will continue to be extremely active and volatile ... as a function of economic activity and other policies," she said.
"Carbon is just a part (of JP Morgan's business model), and an important component because of its linkages to the rest of the energy complex and to various regulatory changes going on."
Masters said a new EcoSecurities CEO will be named soon, "and from there we will review the overall structure of the company to make sure we don't have any overlapping activities that are confusing to clients".
Current CEO Bruce Usher may be replaced by EcoSecurities' Chief Operating Officer Adrian Fernando, who, according to a company spokesman, has been assuming responsibilities for the coordination of company operations since joining in Oct. 2007.
Unlike Climate Care, a voluntary carbon offset company JP Morgan acquired in March 2008, Masters said EcoSecurities will not be integrated into the company and will continue to exist under its own brand name.
Masters also said although United Nations-sponsored talks in Copenhagen in December to agree a successor to Kyoto will likely fail, the key will be climate legislation in the U.S.
"No matter what happens in Copenhagen, the key space to watch will be the U.S. legislative process," she said.
"It's hard to imagine anything meaningful or binding coming out of Copenhagen without the U.S. having undertaken domestic legislation. That will not have happened before Copenhagen."
The U.S. Senate Environment and Public Works Committee is currently reviewing a climate bill that would require U.S. manufacturers, utilities and refineries to reduce their carbon pollution output 20 percent by 2020, from 2005 levels.
Despite the House of Representatives having passed a similar bill in June, the Senate bill now faces harsh opposition from Republicans who claim it will hurt consumers.
"We expect there will be climate legislation impacting the U.S. at some point," Masters said. "We don't believe it will be before 2010 and it could be as late as 2011 if things get bogged down with midterm elections."
(Editing by Sue Thomas)
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