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Saturday
Oct 27 2001
| Updated
0001 hrs IST
1331 EST
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Trouble in Enron drives online energy trade to the edge
Gelu Sulugiuc
NEW YORK
ENRON almost daily revelations of fresh troubles has prompted concerns its powerful position in online energy trading could prompt a credit crunch and rock the fast-growing industry.
Though experts said yesterday that EnronOnline, Enron’s Web trading platform, should survive, investors are skittish about the No 1 US natural gas and electricity marketer.
Since last week Enron has shed more than $13 billion in market value as shares plunged, forcing it on Wednesday to replace its chief financial officer, who was linked to transactions now under investigation by government regulators.
In the latest blow, credit rating agency Fitch yesterday placed Enron debt securities on negative credit watch, saying the erosion of investor confidence, if unabated, would impair the company’s access to capital markets.
“We put them on a list of concerns two months ago and made sure our books were balanced just as the first stage of precaution,” said one energy trader active on EnronOnline.
About 60 per cent of all transactions by Enron are captured through EnronOnline, and so far traders have kept faith.
On Wednesday, EnronOnline — in which trades always involve Enron as either the buyer or seller — conducted 8,000 transactions through its site, with a notional value of $4 billion, more than daily its average of $3.5 billion.
“People are transacting at higher levels as they prepare their portfolios for the winter and to protect themselves from price volatility,” said Vance Meyer, an Enron spokesman.
Not even Enron itself anticipated the success of EnronOnline, which enjoys the highest volume of any platform in the cut-throat field of Internet energy trade.
Initially, the company set a yearly trading volume target of $30 billion to 40 billion — business it now does in 10 days alone.
Yet traders worry Enron’s spectacular fall from grace could make it a less solid counterparty in certain eyes after transactions with two limited parterships run by Andrew Fastow sparked investigations by the US Securities and Exchange Commission. Enron replaced Fastow as its CFE on Wednesday in the hope it would restore investor confidence.
“I haven’t seen any sign of them slowing down or not making a good market on EnronOnline, but until things get squared away, I will keep a tight leash on the credit issue,” one trader said.
“The only thing that bothers me is it takes a lot of capital to do what they’re doing, and with the stock price down, I wonder how much credit they have left,” he added.
Enron said this week that it can tap a $3.35 billion credit line to support its trading and marketing business, which can experience wide swings in cash flow depending on commodity prices.
“In the event of a ‘push-comes-to-shove’ liquidity crunch, we believe the company could generate substantial cash by selling a variety of other assets,” said Ron Barone, an analyst at UBS Warburg.
If EnronOnline does lose steam, the big winner will be its main rival Atlanta-based Intercontinental Exchange (ICE) — which already routinely trades more than $1 billion a day.
“This (recent news) shows there may be some kinks in the armor and some people may stop using EnronOnline,” said Kyle Cooper, analyst at Salomon Smith Barney. “Clearly ICE could benefit or any other alternative online platform.”
EnronOnline is still a force to be reckoned with, experts said. “Enron clearly will survive and EnronOnline will still remain a dominant force” in Internet energy trading, said Barone.
Nonetheless, traders are playing it safe. (Reuters)
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