Buying the dip or buying the dead? Enron Corp shares have almost quadrupled since the company filed the biggest US bankruptcy in history Sunday. The rise confounds lawyers and money managers who say the stock probably will be wiped out in a reorganization or liquidation of the Houston-based energy trader.
"That it's going up boggles my mind," said Peter Antoszyk, a partner at law firm Brown, Rudnick, Freed & Gesmer in Boston, who specializes in bankruptcy law. Enron has about US$19 billion in debt and preferred stock to repay before holders of common shares have any claim to its assets.
PHOTO: REUTERS
Buyers of Enron shares may include those who had bet on a decline and now need to replace borrowed shares to cover short sales, said traders and fund managers. Still, 700 million shares traded so far this week, more than 20 times the number that had been sold short as of last month, suggesting more buyers have been drawn into the rally.
Worthless shares have risen before during bankruptcies. In 1993, the Securities and Exchange Commission investigated trading in shares of LTV Corp and Wang Laboratories after reorganization plans left shareholders with little or nothing. On May 27, 1993, LTV shares were the most-active US stock, trading at US$0.25 a share, even though the steelmaker's bankruptcy called for the shares to be exchanged for warrants worth just US$0.03.
Enron's shares rose US$0.14 to US$1.01 on Wednesday, giving the stock a market value of more than US$750 million. Five blocks of more than 1 million shares moved after the opening, including a block of 2 million shares at US$1.03 just before the close of New York Stock Exchange trading. Last Wednesday the shares plunged 85 percent on trading of a record 346 million shares after Dynegy Inc canceled a takeover, and the shares ended the week at US$0.26.
"The stock won't be worth the paper it's printed on," said Art Hogan, chief market analyst at Jefferies & Co. He reckons Enron, which had a peak market value of more than US$70 billion last year, will be delisted from the New York Stock Exchange.
The NYSE has said it is reviewing Enron's listing on the exchange because of its Chapter 11 filing.
"The exchange monitors compliance with listing standards and it may appraise and determine on an individual basis the suitability for continued listing of an issue in light of all pertinent facts whenever it deems such action appropriate," said NYSE spokesman Ray Pellecchia.
NYSE member brokers "have a `know your customer' obligation under our rules," he said, "to know the essential facts of each customer as the basis for recommending suitable investments." Companies' annual listing fees to the Big Board are due on Jan. 1. Companies pay fees of as much as US$500,000 based on their shares outstanding. The exchange doesn't disclose how much individual members paid, Pellechia said.
With just US$500 million left to fund operations, Enron got permission from US Bankruptcy Judge Arthur Gonzalez this week to draw US$250 million of as much as US$1.5 billion in bankruptcy financing from a bank group led by JP Morgan Chase & Co and Citigroup Inc.
Former customers are shunning the company's trading operation that had generated most of its profits and helped it record US$100 billion of revenue last year. Enron fired half the 8,000 employees at its Houston headquarters and is selling units to raise cash.
Enron's debt sells for US$0.14 to US$0.28 on the dollar, indicating there won't be enough of the company left to cover creditors first in line for repayment, much less common shareholders, fund managers say.
"It looks extraordinarily doubtful there could be any value for the common shares in either a liquidation or a reorganization," said Martin Whitman, who helps manage US$4 billion at Third Avenue Funds in New York and specializes in analyzing distressed securities.
"Shareholders of the new Enron will be almost wholly the unsecured creditors. You can take that to the bank." Whitman said he may buy some of Enron's debt, but wouldn't consider the common shares.
With a minimum of a year and more likely two or more years before a reorganization plan can be worked out, buyers of Enron shares may be looking to sell within days or hoping to influence the bankruptcy talks, Antoszyk said.
Even though holders of common stock are last in line to get repaid, they must as a class approve a reorganization or liquidation plan or a judge must overturn their objection before the plan can go forward.
"The last thing you want is to go to a contested settlement plan," Antoszyk said. "You can create a mess of litigation that can be very costly and slow things up." At current prices, a controlling interest in Enron would cost about US$400 million.
Internet message boards were filled with postings by people arguing whether the rise in Enron is a "sucker's rally" or a buying opportunity.
"It could just be a lot of retail investors who think Enron at US$0.26 a share looked pretty good," said Bruce Simon, chief investment officer at Glenmede Trust, which manages US$17 billion in Baltimore. "They think they can double their money overnight, which you can." Just don't plan on holding the shares long, he said.
The CIA has a message for Chinese government officials worried about their place in Chinese President Xi Jinping’s (習近平) government: Come work with us. The agency released two Mandarin-language videos on social media on Thursday inviting disgruntled officials to contact the CIA. The recruitment videos posted on YouTube and X racked up more than 5 million views combined in their first day. The outreach comes as CIA Director John Ratcliffe has vowed to boost the agency’s use of intelligence from human sources and its focus on China, which has recently targeted US officials with its own espionage operations. The videos are “aimed at
STEADFAST FRIEND: The bills encourage increased Taiwan-US engagement and address China’s distortion of UN Resolution 2758 to isolate Taiwan internationally The Presidential Office yesterday thanked the US House of Representatives for unanimously passing two Taiwan-related bills highlighting its solid support for Taiwan’s democracy and global participation, and for deepening bilateral relations. One of the bills, the Taiwan Assurance Implementation Act, requires the US Department of State to periodically review its guidelines for engagement with Taiwan, and report to the US Congress on the guidelines and plans to lift self-imposed limitations on US-Taiwan engagement. The other bill is the Taiwan International Solidarity Act, which clarifies that UN Resolution 2758 does not address the issue of the representation of Taiwan or its people in
US Indo-Pacific Commander Admiral Samuel Paparo on Friday expressed concern over the rate at which China is diversifying its military exercises, the Financial Times (FT) reported on Saturday. “The rates of change on the depth and breadth of their exercises is the one non-linear effect that I’ve seen in the last year that wakes me up at night or keeps me up at night,” Paparo was quoted by FT as saying while attending the annual Sedona Forum at the McCain Institute in Arizona. Paparo also expressed concern over the speed with which China was expanding its military. While the US
SHIFT: Taiwan’s better-than-expected first-quarter GDP and signs of weakness in the US have driven global capital back to emerging markets, the central bank head said The central bank yesterday blamed market speculation for the steep rise in the local currency, and urged exporters and financial institutions to stay calm and stop panic sell-offs to avoid hurting their own profitability. The nation’s top monetary policymaker said that it would step in, if necessary, to maintain order and stability in the foreign exchange market. The remarks came as the NT dollar yesterday closed up NT$0.919 to NT$30.145 against the US dollar in Taipei trading, after rising as high as NT$29.59 in intraday trading. The local currency has surged 5.85 percent against the greenback over the past two sessions, central
RSS