LONDON, Nov 29: Global energy trading firm Enron faced ruin on Thursday as its European arm filed for creditor protection in one of the world’s biggest ever corporate failures.
A rescue bid for the western world’s dominant power and gas trader, dragged into crisis by its mounting debts, evaporated on Wednesday as trading counterparties turned their backs and creditors lost their remaining confidence in its viability.
Overnight, creditor banks and traders counted the cost of the collapse of a group that accounted for 20 per cent of energy trading in the US and Europe.
The fallout even knocked the dollar amid concerns that it may delay a fragile US economic recovery and prompted temporary share price markdowns among banks and power utilities in Europe.
Despite the scale of the collapse, the trading community fully expected to cover the gaps left by Enron’s demise as many had arranged alternative trades as Enron’s troubles intensified.
In London, accountant PricewaterhouseCoopers (PWC) was appointed as administrator for Enron Europe and a number of its operating companies — a legal move similar to US Chapter 11 protection.
“The appointment follows the credit-downgrading of Enron yesterday and the impact on its ability to trade,” PWC said in a statement.
The administrators said buyers were already circling viable parts of the European business, including its metals trading operation.
“The Enron group built an extraordinarily complex network of integrated businesses and this will take some time for the administrators to work through,” it said. “Our primary focus will be on the large physical assets and trading position of the group.”
DIVIDEND DOUBTS: At its headquarters in Houston early on Thursday, Enron revealed that it may not be able to pay declared dividends on some preference stock.
In Europe some exchanges fought to keep the group’s trading lifeblood flowing, but others shut it out.
Enron Metals Ltd said its London-based EnronOnline screen-based trading system was switched back on after shutting down on Wednesday evening. The London Clearing House said it would continue to clear London Metal Exchange deals done by the metals trading arm.
But Enron’s online European energy brokerage appeared to be closed and in Oslo the Nordic power bourse said it had excluded Enron Nordic Energy from both trading and clearing.
Enron was recently ranked No. 7 on the Fortune 500 list of the biggest US corporations, but saw its shares slump 85 per cent to an all-time closing low of 61 cents on Wednesday after a rescue deal by rival Dynegy Inc fell apart.
Shares fell more than 30 percent in early trading Thursday to 40 cents.
This week rating agencies slashed their ratings on Enron’s bonds to junk status, triggering expectations that last year’s Wall Street darling will be forced into bankruptcy.
The plunge in Enron’s fortunes shook financial markets worldwide, rocking the London Metal Exchange and weighing on U.S. stocks as creditors, such as banking giants J.P. Morgan Chase, Citigroup Inc. and ABN Amro, face substantial losses.
Japanese trusts Nikko Cordial and Japan Investment Trust Management revealed hundreds of millions of dollars worth of bond exposure.
Meanwhile trading partners around the world including American Electric Power in the United States and Centrica and RWE in Europe said they were exposed to millions of dollars of losses.
Enron’s fall from grace began with a $638 million third quarter 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.—Reuters
