Web Myst
I think the tangible book value is more like $ 9/share.
The key factor in ENE's stability and recovery is the confidence they garner from their trading counterparties. If those counterparties lose faith/confidence in ENE, and push for settlement of current trades which could cause a liquidity crisis for ENE, then the whole house of cards starts to fall, and there's no net to soften ENE's fall. Below $ 10 could be a definite reality if this doomsday scenario occurs (some say bankruptcy ... who knows?). It's enough to make me fidgety at night, if I was substantially long ENE.
Question is timing, and timing is dependent on investor confidence. I wouldn't go long until at least someone knowledgeable enough has waded through ENE's balance sheet (and God knows there will be a pack of hounds scouring through the balance sheets when they're finally filed).
If there's any shenanigans in those balance sheets, you'll hear about it from the various analysts and the commentators at RealMoney.com.
So many institutional investors holding such a high % of ENE's shares. They'll bail in a blink (many have), and the "little" investor will get slammed in the price fall.
I'd wait until the smoke clears, and that may be a while.
Other downside risks:
1. Portland General sale to NW Natural Gas for 2.9 Billion. NW Natural Gas will assume about $ 1 Billion in debt and pay the rest cash, but NW Natural Gas only has a market cap of about $ 590 - 600 Million. What if this proposed sale goes bust?
2. India holdings: Following is an extract from a Deal.com article (Oct 5, 2001) about ENE:
Portland General is not the only asset Enron is trying to shed.
The company is working furiously to dump $4 billion to $5 billion worth of assets all around the world as it refocuses on "asset-light" businesses, such as trading and marketing.
But the effort hasn't gone well. It announced Oct. 3 it agreed to sell its Enron Oil & Gas India Ltd. unit to BG Group plc of the U.K. for $388 million. The unit owns a 30% interest in the Tapti gas field and the Panna/Mukta oil and gas fields and almost 63% of the CB-OS/1 exploration license in western India.
It now looks as if that deal could also come unstuck. Indian media reports have suggested that the government wants the operatorship of the assets to pass to two of Enron's joint venture partners — state-owned Oil & Natural Gas Corp. and Reliance Industries Ltd. — rather than remain with Enron Oil & Gas India.
Such a development would render the acquisition unattractive for the U.K. company and likely scupper the deal.
A BG spokeswoman said the company still has "every confidence" Enron Oil & Gas India will retain the operating license for the assets, adding that nothing has changed since the deal was announced. Negotiations are continuing with the joint venture partners and the Indian government, she said.
Enron spokesman Johan Zaayman said BG is making arrangements to take over operation of the fields. "Once that's done, the deal's a go," he said. "We're hopeful we'll be concluded in late October, early November."
Enron is also trying to quit the $2.9 billion Dabhol power plant in India, in which it owns a 65% stake.
Tata Power Co., India's largest private utility, told reporters Oct. 1 it had been in preliminary talks with Enron to acquire the 740-megawatt facility, which has been shuttered since June after its sole customer, the Maharashtra State Electricity Board, which owns 15% of the facility, stopped purchasing power and defaulted on payments.
3. ENE has been furiously trying to sell its Tehachapi wind turbine facility, for anywhere from $ 750 million to $ 1.1 billion. No takers yet, as I understand it.
4. Today, Moody's lowered Enron's senior unsecured long-term debt ratings from Baa1 to Baa2 where they remain on review for downgrade. Moody's additionally placed the company's Prime-2 rating for commercial paper on review for downgrade, citing "substantially reduced valuations in several of its businesses."
5. Misleading insider selling. Earlier this year, Enron Chairman and CEO Ken Lay said the company's stock should be trading much higher -- say $126, more than double its price then. Yet, despite this proclamation, he was selling huge chunks at then current market prices.
Just some of my rambling thoughts, and ideas/concerns expressed by others, and why I'm out of ENE for now. |
