WSJ/Major Business News: Enron's Woes Reach Firms Around World As Aftershocks Roil Markets, Manufacturers
November 30, 2001
By ANITA RAGHAVAN, PETER MCKAY and GREGORY ZUCKERMAN
Staff Reporters of THE WALL STREET JOURNAL
Enron Corp.'s financial travails reverberated around the globe, roiling everything from paper manufacturers in Scandinavia to bank trading rooms in Tokyo.
While none of the ripple effects was crippling, the fact that they were so widespread reinforced the scale of the energy-trading giant's collapse.
The immediate aftershocks were perhaps most felt in London, where Enron's European energy-trading unit and several related businesses filed for protection from their creditors after a spokesman said they stopped receiving cash from their Houston parent.
The move threw European power markets into disarray, sparking a wave of frantic buying of commodities contracts and raising the specter of defaults among other players in the European power market. In addition, shares in Nordic papermakers fell on worries that the collapse of Enron could hit paper prices if Enron's big pulp inventories have to be sold for cash.
"The Enron group built an extraordinarily complex network of integrated businesses, and this will take some time for administrators to work through," said Tony Lomas, a partner at PricewaterhouseCoopers, which was appointed administrator to Enron.
1See more about the rise and fall of Enron.
* * *
2Europe's Banks, Insurers Appear Bulwarked Against Enron Tempest
Besides banks, which are owed billions of dollars by Enron, there are scores of companies that trade energy and metals that did business with Enron that are likely to suffer losses now that the company is unable to meet its obligations.
A spokesman for Enron said the company's United Kingdom trading portfolio, which was put into administration Thursday, "is practically nonexistent now."
In the U.S., Enron's woes continued to rattle energy markets following the shuttering of much of EnronOnline, the once-dominant electronic-trading system operated by the company.
Traders who logged on to the system Thursday were met with a disclaimer, telling them to trade only to manage their own financial risk and not to expect the actual delivery of commodities.
That sent traders in industries ranging from shipping and credit markets to coal scrambling for an alternative.
"We're being crushed with people trying to get on to our system," said Jeff Sprecher, chief executive of Web-based rival IntercontinentalExchange, where traders waited as long as 10 minutes Thursday to log on to trade energy. "We're dealing with a tremendous amount of growth in a very short time."
By far, Enron was most active in electricity and gas trading, although its forays into smaller, sometimes obscure markets were considered significant, as well. For example, Enron had become the largest player in the coal market, prompting one veteran trader to estimate that the company's problems added as much as $1 to the volatility of the coal market during recent weeks. Futures closed down 85 cents at $28.25 a ton on the New York Mercantile Exchange Thursday.
In financial markets, Enron's presence was felt around the world, as many hedge funds, brokerage firms and banks worried about Enron-related losses. With many of these firms approaching the end of the fiscal year, traders were already on edge, worried about sudden losses. The Enron situation has added to their nervousness and made them more likely to get out of positions in some bonds and related products.
In Tokyo, where Enron had issued 100 billion yen in bonds, money managers rushed to calculate their exposure to the troubled company. "Enron's case has brought confusion to the asset-management industry here in Japan," said the executive officer at one major trust bank in charge of all investments. Nikko Asset, Sumitomo Life International (Asset), Daiwa Asset Management and UFJ Asset Management were among those disclosing potential losses in their money market funds.
Enron Australia, meantime, said it was suspending operations pending further developments regarding its U.S. parent.
The announcement followed a warning by Standard & Poor's about counterparty exposure in the Australian electricity market, citing the overnight downgrade of Enron.
While traders were scrambling to deal with Enron's collapse, in India, activists were rejoicing at its fall even though it spells more uncertainty for Enron's Indian arm, which has been locked in a bitter dispute since May with its sole client, the Maharashtra State Electricity Board.
Ever since Enron arrived in India in 1993, its investment in the Dabhol power plant has been a constant source of controversy, with opponents alleging that its power-supply contract heavily favored Enron and placed a huge burden on the finances of its sole customer, the Maharashtra board.
Enron's collapse comes just days before a meeting this weekend of the Indian company's board. At the weekend board meeting, members were expected to take a major step in Dabhol's long-running feud with the Maharashtra board by issuing formal notice that Dabhol will cancel its contract with the board, analysts say.
An Enron executive in India said the meeting would proceed, but Dabhol's lenders, who also planned to meet this weekend in London, have canceled their gathering, according to an official at one lending institution.
In any case, many have been fixated on Enron's travails all week. "We've been following it on the Internet," said Girish Sant, a Pune-based energy expert. Mr. Sant's organization has been highly critical of Enron from the outset.
-- Rasul Bailay and Henny Sender contributed to this article.
Write to Anita Raghavan at anita.raghavan@wsj.com3, Peter McKay at peter.mckay@wsj.com4 and Gregory Zuckerman at gregory.zuckerman@wsj.com5
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