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EDITIONS
Thursday, 1 November, 2001, 17:40 GMT
Troubles multiply at Enron
Enron's share price
By BBC News Online's Briony Hale

The US financial regulator has opened a formal investigation into energy trading giant Enron, deepening its share price crisis.

Shares in Enron fell a further 11% to $11.80 on the news, after having plunged to nine-year lows on Tuesday.

The company has lost 60% of its value since it reported its third-quarter results on 30 September, when two mysterious charges confounded analysts.

These charges led to an informal probe that has now developed into the full scale investigation from the US Securities & Exchange Commission, underlining the fears of investors.

The firm's sudden downfall has shocked analysts and investors around the globe who had previously held Enron up as a darling of the stock markets.

Award winner

Enron's favourable reputation sprang from its succes in transforming itself from a regulated natural gas company into a high tech wonder boasting the world's largest online trading platform.

Enron
$67.3bn assets

30,000 miles of pipeline

15,000 miles of fibre

Active in more than 40 countries

20,000 employees

Chairman and chief executive Kenneth Lay

Headquarters Houston

Fortune magazine tipped the firm as one of the 10 growth stocks to last the decade as recently as 14 August.

The company has won a string of awards, including Fortune's "America's Most Innovative Company" award for an unprecedented six years between 1996 and 2001.

Among its innovations, it has prised open the German power and gas markets, created a virtual gas storage facility in the UK, and pioneered the world's largest online commodity trading site.

Last year, it won the Financial Times's "Energy Company of the Year" award and "Boldest Successful Investment Decision".

It has grown from an insignificant, Houston-based pipeline company in 1985, to one of the biggest traders in the world spanning broadband, precious metals, paper pulp, electricity, gas and weather derivatives.

It is ranked as America's seventh largest corporation by revenue.

Now, the analysts which have sung Enron's praises for so long, have turned on the company, complaining that its financial statements were incomprehensible and its management unresponsive.

Scared counterparties

Most worrying for Enron are the implications on its creditworthiness.

Moody's has already cut the firm's credit rating.

Companies, especially small ones, are very unwilling to deal with a company if there is any risk that its counterparty may go bust.

And a trading company cannot exist without willing counterparties.

Enron has been desperately trying to convince people that it is still a worthy counterparty, circulating updates on how much trade is being carried out through its online platform.

It also took the move of dismissing finance director Andrew Fastow, trying to prove that it was intent on clearing up its finances.

Asset sales

Also on Thursday, Enron announced that it had secured credit lines of $1bn from JP Morgan and Salomon Smith Barney in order to supplement short-term liquidity.

Fears that the rapid decline of the share price could lead to Enron becoming a takeover target led to a sudden upward movement in the share price on Wednesday.

But news of the full investigation quickly reversed this trend, and analysts began to wonder whether it may need to sell some assets off cheaply in order to raise cash.

See also:

22 Oct 01 | Business
06 Sep 01 | Business
30 May 01 | South Asia
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