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Friday,
November 30, 2001, Chandigarh, India  
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Enron heading for collapse
No help in sight despite high links
Citigroup, J.P. Morgan face losses
Naik rules out cut in petro prices |
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Indian wheat for S. Korea
CII alternatives to octroi
Mascarenhas rejoins duty; to retire
today
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Enron heading for collapse
Houston, November 29 Share slumps to 61 cents
Shares of Enron, which was only recently ranked No. 7 on the Fortune 500 list of the biggest US corporations, slumped 85 per cent to an all-time closing low of 61 cents. Major credit rating agencies slashed their ratings on Enron’s bonds to junk status, triggering expectations a company that was a darling of Wall Street just a year ago will be forced into bankruptcy. The dizzying plunge in Enron’s fortunes shook financial markets worldwide, rocking the London Metal Exchange and weighing on US stocks as it left creditors, such as banking giants J.P. Morgan Chase and Citigroup Inc., facing substantial losses. Enron’s latest crash marked another low in a stunning free-fall that began with a $638 million quarterly loss six weeks ago. Surprise disclosures, including the admission it overstated earnings by almost $600 million since 1997 and kept huge debts off its books, led investors to rapidly lose faith in a company valued at almost $ 80 billion a little more than a year ago. Market value falls
After trading on Wednesday, Enron’s market value was barely $450 million. A US regulatory probe into its murky off-balance sheet dealings and the unexpected departures of a chief executive in August and a chief financial officer in October helped fuel the fall. Enron “entrapped the sophisticates,” said Robert Stovall, senior strategist at Prudential Securities, referring to what was once an almost fawning admiration for Enron by institutional investors. “I think this is going to become a classic case.” Stovall, with nearly 50 years of Wall Street experience, said he could not recall any previous corporate unraveling that could match Enron’s. “You would have to go to pre-SEC days for that,” he said, referring to the creation of the US Securities and Exchange in the aftermath of the stock market crash of 1929. Enron set a New York Stock Exchange record with 181.86 million shares changing hands, almost 33 per cent more than the previous record set by Lucent Technology on January 7, 2000. To halt payments
Dynegy accused Enron of breaching representations it made when a takeover agreement was negotiated on November 9, invoking an escape clause that let it pull out of the all-stock deal valued at $9.3 billion at the time. Enron said it would cease payments on all but its core operations. Already awash in some two dozen shareholder and employee lawsuits alleging misrepresentation, Enron on Wednesday founded a litigation committee that was certain to take aim at Dynegy’s pullout. Enron can expect more lawsuits, especially from big investors like mutual and pension funds, Baylor University investments professor William Reichenstein said. “The big question now is whether there is anything left to go after. That remains very much in doubt,” he said. Faces $ 3.9b loss
The loss of Enron’s investment-grade credit rating forces some $3.9 billion in debts to come due immediately, a major problem for a company that has spent most of the $5.5 billion it sought in recent weeks to stay afloat. Enron said in a recent regulatory filing that it was unlikely to ‘’continue as a going concern’’ were its credit rating to be slashed to junk status. Dynegy apparently took that warning to heart. “We knew when to say ‘no’ and this morning we said ‘no,’” Dynegy Chairman and Chief Executive Officer Chuck Watson said during a brief conference call with investors. Dynegy said it would exercise an option to buy Enron’s Northern Natural Gas Pipeline with the $ 1.5 billion it and partner ChevronTexaco Corp. put into the deal. Enron said it was reviewing Dynegy’s actions, including its “assertion that it is entitled” to buy the pipeline. The stock peaked at $ 90.56 in August 2000, riding high on the cresting wave of the technology boom after Enron took its trading outfit online and promised to bring its business model into the broadband communications arena.
Reuters
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No help in sight despite high links Houston, November 29 The company and its chief executive Ken Lay have long been heavy contributors to powerful Republicans, including President George W. Bush, and have lines of communication to the White House and Congress. But, say senior Republicans, its financial wounds are so deep and heavily self-inflicted that it is likely to get little more than sympathy from its well-connected friends. Enron said it was exploring its options and in the meantime would quit paying most of its bills. Most analysts believe it will soon file for bankruptcy protection. The stunning fall from grace follows a long period in which Enron and Lay built up political contacts that made it the envy of the corporate world. Political experts estimate Lay has given $1 million to Bush political campaigns over the years. Last year, the Bush election campaign accorded Lay the title of Bush "Pioneer" for raising at least $100,000 for Bush's run for the presidency. When Bush was the Governor of Texas, Lay served on his Governor's Business Council, which helped push the Bush legislative agenda, and he was a key energy adviser during the presidential campaign. According to the Center for Responsive Politics, which tracks money in politics, Enron and its employees gave $2.4 million in the 2000 election year.
Reuters
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Citigroup, J.P. Morgan face losses New York, November 29 Citigroup and J.P. Morgan,
which acted as advisers on the Dynegy deal, have total commitments to
Enron of between $700 million to $800 million. Now, the payment of
some of these loans could be in jeopardy. Included in that exposure
is a $1 billion joint credit line the banks extended to Enron when the
Dynegy merger was announced. Enron has already drawn down the entire
credit line, according to company spokesman Vance Meyer. That credit
line is fully secured by Enron’s Trans Western and Northern Natural
Gas pipeline systems. Northern Natural’s future was somewhat clouded
on Wednesday by Dynegy’s claim that it would exercise an option to
buy the pipeline for $1.5 billion, but sources familiar with the
situation said both banks expect to be repaid in full either
way. J.P. Morgan late on Wednesday said it has about $500 million of
unsecured exposure to Enron and another $400 million in exposure
secured by the Trans Western and Northern Natural pipelines. Citibank
declined to comment, although analysts said the impact on the
company’s bottomline could be very real depending on how the
situation plays out. “The after-tax impact to (earnings per share)
— should Enron go completely under — based on Citigroup’s 5.2
billion shares outstanding and J.P. Morgan’s 2 billion shares
outstanding would be less than $ 0.05 for Citigroup and $ 0.10 for
J.P. Morgan,” analyst Richard Strauss of Goldman Sachs said in a
research report. That works out to less than $ 260 million for
Citigroup, and $ 200 million for J.P. Morgan. Such losses could cut
Citigroup’s fourth-quarter earnings per share by nearly 6 per cent,
and slash J.P. Morgan’s quarterly earnings by as much as 20 per
cent. Reuters
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Naik rules out cut in petro prices New Delhi, November 29 Replying to supplementaries raised by Smajawadi Party MP Ramji Lal Suman and others during question hour, Petroleum Minister Ram Naik admitted that though the cost of production of petroleum products had declined, still there was a massive deficit in the oil pool account, estimated at Rs 12,000 crore. Mr Naik said the fall in prices of crude oil would definitely benefit the consumers in the post-administrative price mechanism (APM) period after April 1, 2002. The minister said the programme for the continuation of subsidy on kerosene oil and LPG cylinders at the rate of 33 per cent and 15 per cent in the post-APM period would be announced in the next Budget. The subsidy over and above 15 per cent worked out around Rs 92 per cylinder at the current rate of prices, Mr Naik pointed out. He said on account of the devaluation of rupee, the increase in oil pool deficit was estimated to be around Rs 1,000 crore and Rs 3,300 crore during the year 1999-2000 and 2000-2001, respectively. The increase in oil pool deficit is estimated to be around Rs 650 crore during the period from April, 2001 to November, 2001 on account of the devaluation of rupee. Replying to another question, Mr Naik said decline in the crude oil prices in the internatinal market helped in reducing the oil import bill, the oil pool deficit and the consumer prices of decontrolled products. The decrease in crude prices by $ 1 per barrel for a month reduced the oil import bill by around Rs 260 crore, he said. |
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Indian wheat for S. Korea
New Delhi, November 29 “One of the multinational companies (MNCs) has got an order to export 80,000 tonnes of wheat to South Korea at $ 96.5 per tonne for January and February 2002 delivery, to be used as feed,” official sources said. Underpricing could be gauged by the fact that the same MNC which was exporting to South Korea also had an order to ship 20,000 tonnes to Philippines in January and February for milling purposes, but the price was the same $ 96.5 per tonne.
PTI
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CII alternatives to octroi Chandigarh, November 29 It said the sales tax on petrol can be shared with local bodies. Petrol dealers within the municipal limits can be allowed to deposit this amount directly to the local bodies. Increase in water supply and sewerage charges to recover basic cost of these services, introduction of commercial tax on retail outlets based on floor area, location, etc and advertisement tax can promise sizeable income. The CII has also suggested increase in percentage of net proceeds of the stamp duty, the Punjab Motor Vehicle Act, the electricity duty, entertainment tax and show tax.
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