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Enron Mail |
THE FINANCIAL EXPRESS, Monday, November 26, 2001
Aditya Birla group pitches for picking stake in Dabhol project, Sourav Maju= mdar & Namrata Singh=20 Similar story also appeared in the following publications: THE INDIAN EXPRESS, Monday, November 26, 2001(carried only by the online ed= ition) Aditya Birla group pitches for Dabhol project, Sourav Majumdar &Namrata Sin= gh=20 THE ECONOMIC TIMES, Monday, November 26, 2001 AV Birla Group joins race for Enron stake, SABARINATH M & ANTO T JOSPEH=20 BUSINESS STANDARD, Monday, November 26, 2001 Third bidder joins race for Dabhol, Tamal Bandyopadhyay & S Ravindran=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE FINANCIAL EXPRESS, Monday, November 26, 2001 Venue for DPC arbitration process shifts to Singapore, Sanjay Jog=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE HINDU BUSINESS LINE, Saturday, November 24, 2001 MSEB to skip DPC board meet=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ BUSINESS STANDARD, Monday, November 26, 2001 The Enron scandal Enron's root problem was in its investment activities, says A V Rajwade ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ECONOMIC TIMES, Saturday, November 24, 2001 Hurry while stocks last ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE FINANCIAL EXPRESS, Saturday, November 24, 2001 Dynegy has not informed Centre about Enron takeover: Minister ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE TIMES OF INDIA, Monday, November 26, 2001 Enron bleeds again as Dynegy deal doubts grow=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ECONOMIC TIMES, Monday, November 26, 2001 Enron avoids junk status, NEW YORK ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ BUSINESS STANDARD, Monday, November 26, 2001 Devil in the details, Devangshu datta=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ECONOMIC TIMES, Monday, November 26, 2001 Enron staff sue as pension savings evaporate=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ECONOMIC TIMES, Sunday, November 25, 2001 Enron deal may be reworked=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE FINANCIAL EXPRESS, Sunday, November 25, 2001 Pune-based NGO wants limited role for Merc in setting MSEB tariff, Sanjay J= og=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ BUSINESS STANDARD, Monday, November 26, 2001 Maharashtra may have to pay Rs 60000 crore to MSEB: Godbole=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ASIAN AGE, Saturday, November 24, 2001 BJP loan costs state Rs 6,000 cr, Olga Tellis=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE FINANCIAL EXPRESS, Monday, November 26, 2001 Aditya Birla group pitches for picking stake in Dabhol project, Sourav Maju= mdar & Namrata Singh=20 The Aditya Vikram Birla group is understood to have put in a statement of = interest for the beleaguered 2,184-mw Dabhol power project. This has create= d a new twist to the Dabhol saga, which has been beset with uncertainties f= rom the very beginning. The move comes close on the heels of the AV Birla g= roup's decision last week to pick up Reliance Industries' over 10 per cent = stake in construction and engineering major, Larsen & Toubro, for a conside= ration of Rs 766.50 crore. Industry sources conjecture that the Birlas migh= t also be interested in jointly bidding for an 85-per cent stake in Dabhol = Power Company (DPC) along with the Tatas. Tata group company Tata Power has= already evinced a keen interest in bidding for the project, with the only = other player in the fray being Mumbai's power utility major, BSES.=20 Tata Power and BSES have already commissioned a due diligence study as a pr= ecursor to the bidding process. Birla group officials were unavailable for = comment. Birla's interest in Dabhol has thrown up a fresh dimension to the = DPC story even as it unfolds. The Birla group has a presence in the power s= ector with Rosa Power. The 567-mw Rosa Power project is a joint venture bet= ween the AV Birla group, which has a majority holding, and UK-based PowerGe= n. The possibility of a joint bid along with the Tatas, if it were to happe= n, would make this a second mega venture for the two major corporate groups= in India. The two groups had last year struck a mega merger deal with the = telecom venture, Birla-AT&T-Tata. However, it is not known as to which of t= he Birla group companies would be employed for the task of bidding for Dabh= ol.=20 The 85 per cent stake in DPC under consideration includes the holdings of E= nron Corporation, Bechtel Enterprises Inc. and General Electric, all US-bas= ed companies. MSEB, which is currently waging a legal battle with DPC over = non-payment of dues, holds a 30-per cent stake in the 740-mw phase-I of the= Dabhol project. The crux of the problem with the languishing project is un= affordable tariff rates, which the promoters are currently deliberating on = as to how this could be reduced. The 1,444-mw phase-II of the project has b= een stalled midway. The bidding process for the stake under consideration w= ould be critical with Enron, which was earlier demanding a price of $1.2 bi= llion for exiting the project, agreeing to scale down the price demand by a= lmost 30 per cent. Globally, parent Enron Corporation is being acquired by = Houston-based Dynegy Inc. for $9 billion.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE FINANCIAL EXPRESS, Monday, November 26, 2001 Venue for DPC arbitration process shifts to Singapore, Sanjay Jog=20 The arbitration proceedings initiated by the Dabhol Power Company (DPC) aga= inst the Maharashtra government for non-payment of December bill of Rs 102 = crore will now take place in Singapore instead of London. In view of the sh= ifting of venue, a high-level team led by the state principal energy secret= ary VM Lal has flown to Singapore to hold talks with the arbitration tribun= al for deciding future timetable to take up arbitration proceedings there. = Official sources told The Financial Express that Mr Lal is accompanied by t= he state government solicitors Rafia Dada, Atual Harayani and Daraious Kham= bata. The state government team would hold talks with its arbitrator Quenti= n Loh, DPC's arbitrator Andrew John Rogers QC (formerly chief judge of the = commercial division of the Supreme Court of New South Wales) and the arbitr= ation tribunal head Lord Mustill. The meeting deserves special significance= especially when the DPC has agreed for due diligence by the Tata Power and= BSES after signing a separate confidentiality agreement with it.=20 This was agreed at a three-day meeting convened by the financial institutio= ns at Singapore from November 8. Mr Lal's meeting with the arbitration trib= unal is also crucial as the London Court through its ex-parte order of Octo= ber 10 has restrained the state government from filing any suit in the Indi= an courts or tribunals against the DPC. Sources said that the government th= rough its arbitrator would make a strong plea that the arbitration proceedi= ngs should await the outcome of the arbitration process between the DPC and= the MSEB in order to save both time and duplication. "This is in view of t= he fact that the parties are the same and the disputes emanate from the sam= e set of facts and contractual obligations of the parties and the arbitrato= rs named by both the parties for all the three arbitrations (DPC has served= arbitration notices against the state government for latter's default in t= he implementation of state support agreement, supplemental state support ag= reement and state guarantee agreement) are the same," sources said. It must= be noted here that the Maharashtra Electricity Regulatory Commission (MERC= ) has already restrained the DPC on May 29 from carrying out arbitration pr= ocess against MSEB until the issue of MERC jurisdiction to adjudicate diffe= rences.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE HINDU BUSINESS LINE, Saturday, November 24, 2001 MSEB to skip DPC board meet=20 THE Maharashtra State Electricity Board (MSEB) has decided against attendin= g the board meeting of Dabhol Power Company (DPC) to be held at London on N= ovember 30. The board will reportedly discuss issuing of the final terminat= ion notice (FTN). According to senior MSEB officials, the board is against = the Enron-promoted DPC's proposal to grant the company's Managing Director = rights to issue FTN according to his discretion. DPC has yet to approach it= s lenders for a go-ahead to issue the FTN, which will end the stint of the = controversy-plagued 2,184-MW power company in the country. "The decision to= issue final termination in turn means wiping out the very existence of the= company. We believe that such an important decision should not be left to = one person. The entire board of directors should vote on it,'' a senior MSE= B official told Business Line. Another reason for the board's decision to n= ot attend the meeting=20 is that MSEB does not have voting rights despite being a 15 per cent stakeh= older. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ BUSINESS STANDARD, Monday, November 26, 2001 The Enron scandal Enron's root problem was in its investment activities, says A V Rajwade Enron has always been recognised by other companies as best practice in ris= k management. It put in systems to manage risks on a real-time basis and ha= d very strong management." - James Lam, founder of eRisk, a consulting firm= . As an occasional teacher and more regularly a student of the subject of m= anagement of price risks, I have been an admirer of Enron's elaborate discl= osure of its risk management practices. And yet, in a cascade of events ove= r a period of just three weeks from mid-October, it lost two-thirds of its = share value, became the subject of a US Securities Exchange Commission (SEC= ) investigation, and was taken over by a rival a third in size. (Latest rep= orts create some doubt about whether this will go through.) What went wrong= ? No, the events had nothing to do with Dabhol. Indeed, if, for us in India= , Enron will always be associated with the controversial power project, els= ewhere it is likely become a case study for students of accounting, finance= and general management. (On second thoughts, even its Indian adventures wo= uld make an excellent case study!)=20 But first, a recount of what happened. After announcing on October 16, with= out much explanation or transparency, that it has taken a charge of $ 1.2 b= illion against equity, Enron's share price started tumbling. Apparently, th= e charge was the result of some financial transactions, and the SEC launche= d an investigation. The chief financial officer (CFO), who was directly inv= olved with the transactions, the company's treasurer and a couple of other = senior officials were sacked. Perhaps most damagingly, Enron revised its ac= counts from 1997 onwards, reducing profits by about $ 600 million and incre= asing debt by a somewhat similar amount. As a result, Enron's credit rating= was downgraded. It seems the root problem was not in its basic business of= power and gas trading, but in its investment activities controlled by the = CFO. These comprised private equity, and Enron's share in each of the inves= tee companies was kept artificially below 50 per cent to avoid consolidatio= n of accounts. To this end, outside investors were brought in and assured o= f equity in Enron itself, should the value of the investee company(ies) fal= l below agreed threshold(s).=20 All this was done to keep the losses in investments off-balance sheet, and = mitigate their impact on reported profits. Many other US corporations inclu= ding J P Morgan Chase, which had large private equity investments, have suf= fered on this score (see World Money October 15). Enron wanted to avoid thi= s and, last year, paid its since-dismissed CFO $ 30 million for his creativ= e accounting genius. Incidentally, those enamoured of US GAAP and its alleg= ed superiority over the rest of the world should note that all these gimmic= ks were blessed by the company's auditors - one of the Big Five firms, whic= h was paid $ 25 million as audit fees and $ 27 million for other services b= y Enron last year. The restatement of the accounts from 1997 onwards became= necessary as the Enron management/board and the auditors were forced, on r= eview, to admit that at least some of the transactions should have been on,= rather than off, balance sheet. Details of all the transactions in questio= n are yet to come out, but what has come out is bad enough.=20 But this apart, a billion dollar hit for a company of the size ($ 300 billi= on) or cash flow ($ 3 billion) of Enron is, by itself, hardly a death warra= nt. But it turned out to be just that for Enron. Perhaps because it was too= arrogant? Perhaps also because its accounts lacked transparency and their = opaqueness ensured that investors' confidence was always somewhat fragile? = But there are two other points worth noting: the professionalism of equity = analysts and whether the event restores somewhat the balance between tradin= g and producing. As for the first, the professional analysts were surely aw= are of the opaqueness of the accounts, but few questioned the management ag= gressively on the subject.=20 Perhaps the stock was too glamorous and typified the spirit of the times - = trading assets was what the "masters of the universe" did, not the boring o= ld business of producing oil or power or cars. The Enron management itself = was proud of the way it operated in its principal activity of trading in po= wer and gas, with Skilling, the former CEO, claming that "we are on the sid= e of angels. We are taking on the entrenched monopolies. We are bringing th= e benefits of choice and free markets to the world." (The quotation is from= an interview in BusinessWeek, prior to Skilling's inglorious exit from Enr= on a couple of weeks before the bubble burst).=20 For the analysts, there was also safety in numbers. Skilling claimed that "= Enron's operations are built around the integration of modern financial tec= hnologies and physical technologies", bringing derivatives theory to tradin= g in power and gas! Obviously, the fate of Long Term Capital Management has= not led to more sober management of trading risks. Surely the role of "mar= kets" should be to reduce the distance, and cost, between producer and cons= umer? One does feel that there is something perverse in a society that valu= es, in terms of compensation, the trader (don't forget this is just a euphe= mism for the speculator) over the producer - whether in the bond, currency = or power and gas markets. The markets and, indeed, greed obviously have a r= ole to play, but surely the pendulum needs to swing a little bit to the lef= t?=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ECONOMIC TIMES, Saturday, November 24, 2001 Hurry while stocks last BSES and Tata Power, the two companies which are interested in buying out E= nron's stake in the troubled Dabhol Power Company (DPC), should hurry up an= d make their offers soon. Failing that, a consortium of financial instituti= ons should get together to bid for the equity as a strategic investment, to= be sold off when prospects improve. There is a clearance sale at Houston a= nd India must rush while stocks last. Enron is in deep financial trouble at= home, where debts of close to $700 million have to be paid soon. The Houst= on-based energy giant is struggling to put together credit worth $1 billion= , but less than half has come through. A merger with Dynegy, a smaller riva= l, could also be in trouble. All of this means that Enron will be happy to = see cash upfront, even at a substantial discount to the $1.1 billion valuat= ion for DPC. Reports say that Indian FIs think $700 to $800 million is a re= asonable price, but the payments would be staggered over five years or so. = Given Enron's current cash crunch, it would be better to haggle for an even= lower price, but agree to pay all the money upfront.=20 Acquiring DPC for a fraction of its original equity value will mean that de= bt will also have to be restructured drastically - all lenders have to take= drastic haircuts - otherwise gearing will swell beyond all reasonable prop= ortion. With equity and debt written down, Dabhol power will become cheaper= . That will be good news, but India should wait before declaring this a mil= estone of power reforms. It isn't. The fundamental problems that make power= projects high risk investments remain unresolved. Jurisdiction is scattere= d between central and state governments, power pricing is politically deter= mined, theft is rampant and state electricity boards (SEBs) are bankrupt.= =20 Private power producers may soon be allowed to sell electricity to non-SEB = bulk buyers, but that won't solve basic political and administrative proble= ms. The real reforms have to take place in the states, where nothing is hap= pening. A lot of hullabaloo was made about power reforms in Orissa. Yet AES= tried to opt out because its distribution company faced enormous resistanc= e while collecting dues from consumers. A recent World Bank study shows ref= orm claims by states like Andhra are mostly hollow: rural power supply is p= atchy, of poor quality and has failed to justify people's expectations. Thi= s must change. Otherwise, even at substantially lower cost, projects like D= abhol will make no sense.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE FINANCIAL EXPRESS, Saturday, November 24, 2001 Dynegy has not informed Centre about Enron takeover: Minister The union minister of state for power Jayavantiben Mehta on Friday said tha= t the Dynegy Inc, which has recently launched the Enron acquisition process= , has not yet formally informed the Centre about its decision. Ms Mehta aft= er addressing a valedictory address at the three-day international conferen= ce on power sector organised by the India Tech Foundation told The Financia= l Express that though the Centre was aware of the Enron takeover by the Dyn= egy Inc, the Centre has not yet received any communication so far either fr= om Enron or From Dynegy. Ms Mehta reiterated that the Centre was not at all= interested to take over the distressed Dabhol project, neither the state-r= un National Thermal Power Corporation (NTPC) would made a bid for it. She a= dmitted that the NTPC official attended the recently held Singapore meeting= convened by the Indian Financial Institutions with the Dabhol Power Compan= y, Tata Power and BSES to expedite the process of sale of Enron stakes in t= he Dabhol project. She made it clear again that NTPC would not take over th= e Dabhol project. Ms Mehta said that the Centre was committed for the capac= ity addition of one lakh megawatt by 2012 and added that the special secret= ary of the union ministry of power S Prabhakaran has recently submitted a r= eport for achieving this target. Mr Prabhakaran's report has made various r= ecommendations for the speedy development of various power projects for mak= ing available economical and quality power across the country by 2012.=20 Dynegy denies going back on buyout=20 The Dynegy Inc has scoffed at the reports of not going ahead with the acqui= sition of Enron in the wake of dip in the Enron share prices. "We are encou= raged by Enron Corp's report on Wednesday that it has closed the remaining = $450 million credit facility secured by the assets of Northern Natural Gas = Pipeline and has received a commitment from its lead bank to extend the $69= 0 million note payable obligation described in Enron's recent 10-Q filing. = We are continuing our confirmatory due deligence and working to accelerate = the regulatory approvals required to complete the merger in accordance with= the previously announced agreement," said the Dynergy Inc spokesperson Joh= n Sousa.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE TIMES OF INDIA, Monday, November 26, 2001 Enron bleeds again as Dynegy deal doubts grow=20 A long weekend of work faced Dynegy and proposed acquisition Enron, whose w= orsening stock woes on Friday whipped up fear that the deal could be renego= tiated or collapse entirely. Houston-based Dynegy and its advisers were exp= ected to spend the long holiday weekend reviewing larger cross-town rival E= nron's complex books, as both parties race against the decline in Enron's s= tock to complete the thorough financial examinations a merger requires. Enr= on shares ended down more than 5 per cent, or 27 cents, to $4.74 at the clo= se of abbreviated Friday trading on the New York Stock Exchange. Dynegy sha= res closed up 64 cents, or 1.61 per cent, to $40.40. Dynegy on November 9 agreed to pay about $9 billion in stock for Enron. But= , after falling 45 per cent by Friday's close amid fears it could run out o= f cash before the deal closes, Enron's market capitalization is only about = $4.03 billion. At Dynegy's current stock price, its offer for Enron is wort= h about $10.85 a share -- more than twice Enron's current share price. Exec= utives and advisers from both companies are in the final stages of the revi= ew, known as due diligence, sources familiar with the matter said. The sour= ces said renegotiations had not been discussed as of Friday afternoon, and = that such discussions could not occur until the due diligence review is fin= ished. But should it turn up any more unpleasant surprises that qualify as = a "material adverse change" in Enron's business, the likelihood increases o= f Dynegy invoking escape clauses or renegotiating, analysts and observers s= ay. "You've got to believe there is that possibility. There is a 90 per cen= t spread on the deal," said one analyst. "There's unquestionably continued = malaise in Enron's core business and Dynegy has left itself open to renegot= iate with Enron." UBS Warburg analyst Ron Barone on Wednesday wrote in a re= search report that the likelihood was "soaring" that Dynegy might discover = a material adverse change. Enron spokeswoman Karen Denne said that, to her = knowledge, Dynegy was not renegotiating the terms of the acquisition. She r= epeated that Enron was working on obtaining an additional $500 million to $= 1 billion in private equity funding to help shore up the balance sheet. Dyn= egy spokesman John Sousa said due diligence was continuing and said the com= pany remains optimistic about the merger. TRADERS FEARING RENEGOTIATION Enron's recent admission that lower volumes at its trading business -- the = crown jewel of Enron that Dynegy most covets -- could cause low fourth-quar= ter earnings raises the possibility that the trading business is losing its= profitability. Continued losses there would remove a key attraction for Dy= negy. Electricity traders said the latest developments are making it seem m= ore likely that Dynegy will renegotiate the deal or back out entirely, a mo= ve they said would leave Enron vulnerable to creditors and a possible bankr= uptcy. This week rating agency Fitch Investors said that if Dynegy stepped = away from the merger, Enron's credit situation seemed untenable and a bankr= uptcy filing was highly possible. Traders, speaking on condition on anonymi= ty, said they expected Dynegy to scramble over the weekend to narrow the gr= owing share price gap. Enron's depleted market value and the shrinking volu= me in its EnronOnline trading system makes it more likely Dynegy could pull= out, traders said. Meanwhile, energy traders reiterated that they would shy away from long-ter= m deals with Enron unless they received substantial assurances the company'= s credit rating would soon improve. Enron's bonds on Friday were again talk= ed at junk-bond levels, but even lower than before. Enron's 6.4 per cent no= tes maturing in 2006 and its 6.75 per cent notes were bid Friday at 57 cent= s on the dollar, down from a respective 62 and 60 cents on Wednesday, accor= ding to a trader. The notes yield to maturity a respective 21.5 per cent an= d 17 per cent. Its 20-year zero-coupon convertible bonds fell about 1 cent = on the dollar to just over 33 cents. Enron is hovering at the edge of investment-grade as the three main credit = trading agencies consider whether to cut them again, and some observers won= der how Enron has avoided it. "A bond trading in the 50s has nothing to do = with an investment-grade security," said Scott Smith, a principal at Wells = Capital Management in San Francisco, where he invests $6 billion in debt an= d does not own Enron. ( REUTERS ) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ECONOMIC TIMES, Monday, November 26, 2001 Enron avoids junk status, NEW YORK It is rare that holding onto investment-grade credit ratings means as much = to a company as it does now to beleaguered energy trader Enron, and some ob= servers are wondering why a cut to junk status is taking so long. "The sum = of all knowledge is in the valuation of the stock and the bonds," said Scot= t Smith, a principal at Wells Capital Management in San Francisco, where he= invests $6 billion in debt, and does not own Enron. "A bond trading in the= 50s has nothing to do with an investment-grade security." Enron's 6.4 per = cent notes maturing in 2006 and 6.75 per cent notes were bid Friday at 57 c= ents on the dollar, down from a respective 62 and 60 cents on Wednesday, a = trader said. The notes yield to maturity 21.5 per cent and 17 per cent. Meanwhile, Enron's shares have sunk 94 per cent this year. Since October 16= , when it released third-quarter results, which it has since revised downwa= rd, its shares have fallen 86 per cent, and its bonds by nearly half. Houst= on-based Enron, which is trying to merge with smaller cross-town rival Dyne= gy, has been rocked this year by accounting problems, earnings restatements= , a federal investigation and a top management shuffle. Its advisers were e= xpected this weekend to pore over the company's books, which could lead to = a renegotiation of the merger, sources familiar with the matter said. Moody= 's Investors Service and Standard & Poor's have cut its senior unsecured de= bt ratings twice in the last month to their current Baa3" and "BBB-minus," = their lowest investment grades. Fitch has cut its equivalent rating to "BBB= -minus," and all three agencies have warned of more possible cuts. The stakes could hardly be higher.=20 A downgrade to "junk" status could imperil Enron's trading business, force = it to pay off as much as $3.9 billion of debt issued mostly by two trusts, = and possibly force it to seek bankruptcy protection, analysts said. Enron s= aid in a securities filing it recently had less than $2 billion of availabl= e cash and credit lines. S&P said on Tuesday that Enron faces "liquidity is= sues," but enjoys an "alignment of interests" with its banks and a near-ter= m financial position that "is expected to be sufficient" to allow the Dyneg= y merger. Fitch, meanwhile, said on Wednesday that "our present 'BBB-minus'= rating rests on the merger possibility and continued support of the lendin= g banks." If Dynegy walks away, it said, "Enron's credit situation seems un= tenable with a bankruptcy filing highly possible." Enron said on Monday it had $9.15 billion of obligations due through next y= ear, and a $690 million note that could come due next Tuesday. It later sai= d it got a three-week reprieve. Sean Egan, managing director of Egan-Jones = Ratings in Philadelphia, likened Enron's ratings situation to those of Cali= fornia's two largest utilities, Pacific Gas & Electric and Southern Califor= nia Edison . Despite investor unease, those utilities kept their investment= -grade ratings only until they defaulted on debt in January, as California'= s power crisis worsened. On November 8, a day before the Dynegy merger was = announced, senior officials from Enron's lead banks -- William Harrison, ch= ief executive of J.P. Morgan Chase, and Michael Carpenter, who runs Citigro= up's investment banking arm -- met with Moody's to help allay that agency's= concerns, a person familiar with the meeting said.=20 A day later, Moody's, which issued no statement on Enron this week, downgra= ded the company's senior unsecured debt rating, but only to its current "Ba= a3." "Pressure is coming from the investment banks, which have a vested int= erest in seeing the Dynegy deal go through," said Egan, whose agency rates = Enron's debt "BB," its second-highest junk grade. "Investment banking fees = will be substantial." Companies pay for Moody's and S&P ratings, which they= need to obtain financing. Egan said his agency receives no such payments. = Citigroup and JP Morgan declined to comment. Moody's and S&P did not immedi= ately return phone calls. Fitch was not immediately available for comment. = Dynegy and Enron on Wednesday, however, reaffirmed their commitment to the = merger. Wells Capital's Smith isn't sure what to expect. "Enron will remain= definitively investment grade if the merger as billed goes through, but th= ere are half a dozen things that could go wrong," he said. "Obviously, the = equity markets are telling you it's very skeptical the merger will go throu= gh, and the bond market is following its lead."( REUTERS ) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ BUSINESS STANDARD, Monday, November 26, 2001 Devil in the details, Devangshu datta=20 Looking at the market now, it's almost as though September 11 never happene= d. The indices are back above September 12 trading levels,local investors a= re trading enthusiastically, volume and price recovery is evident across th= e board. Maybe this is because Kabul has fallen and Kandahar is within a we= ek of collapse. But the USSR had control of every Afghan population centre = within 24 hours of the 1979 airlift invasion. It already had a puppet regim= e in place. The Red Army withdrew after eight more years of bitter fighting= and 35,000 casualties! It would thus take a historical ignoramus to assume= that this war will end with the capture of Kandahar. Other signals are eve= n more disquieting. Every FII appears to be in the process of either pullin= g out totally or cutting back on its Indian presence. There could be severa= l reasons. The US slowdown has been cited, so has Enron. Whatever the reaso= ns, it is an amazing turnaround of sentiment, given that 2001 began with th= e FIIs pumping in money. There could be pressure on Indian reserves in the = next fiscal and that could have prompted the currency downgrade. The market= revival is a little puzzling when one examines details. ICE stocks that ha= ve delivered poor Q2 results have moved up sharply whereas ICE stocks that = have delivered decent results have not. There are strong rumours that opera= tors are trying to ramp up prices, lure in smalltimers and offload the K-10= stocks they've held since March.=20 Old economy movements could more credibly be ascribed to value-buying. But = even here, a lot of action is based on rumour mongering. Some MNC is about = to make an open offer, somebody else is going to divest a loss making divis= ion. That sort of thing seems a little pronounced at the moment. Undoubtedl= y there are value-based buys available. But value based buying requires the= strictest adherence to discipline and it's interesting to apply standard p= arameters to the market as a whole. The Nifty is trading at a price-earning= s ratio of 14 plus, it has a price book value ratio of 2.25 and a dividend = yield of 1.6 per cent at current rates. This is an economy where returns of= approximately 6.7 per cent are safely available from short-term debt and i= nflation is around 5.5 per cent to 6 per cent. Long term debt returns range= up to about 11 per cent for the savvy trader and around 9.5 per cent for t= he passive investor.=20 A value investor would thus look to see if his projections suggested the fo= llowing: First that EPS growth will beat at least 15 per cent, second that = the P-BV is historically low and returns from capital gains plus dividend y= ield would beat 15 per cent over the next year. Assuming constant inflation= , and adjusting for dividend, the Nifty would have to improve by 12 per cen= t to 15 per cent to meet the capital gains target. Overall EPS growth beati= ng 15 per cent looks doubtful. P-BV is on the low side. A further index imp= rovement of 15 per cent also looks a stretch. Broad-based buying thus seems= a 50-50 shot unless the investor waits much longer.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ECONOMIC TIMES, Monday, November 26, 2001 Enron staff sue as pension savings evaporate=20 AFTER climbing utility poles in all kinds of weather for 35 years, Roy Rina= rd was hoping to retire in a few years, but that was before the collapse in= Enron's stock price devoured his retirement savings. "I'm basically wiped = out," said Rinard, 54, who works for Portland General Electric, an Oregon u= tility company acquired by the Houston-based energy trading giant in 1997. = "I'm right back to ground zero and I'll have to go on working as long as I = can," said Rinard, who suffers from arthritis and a lung condition that lea= ves him short of breath. Encouraged by Enron's then-strong performance and = the company's bullish view of its future prospects, Rinard moved all of the= money invested in his 401(k) retirement account into Enron stock earlier t= his year.But it proved to be a costly decision as the value of his account = fell from $470,000 a year ago to around $40,000 today. Rinard now hopes a l= awsuit filed in US District Court in Houston will recover at least some of = his money. The suit, filed on behalf of Enron employees by Seattle-based la= w firm Hagens Berman, alleges that Enron breached its fiduciary duty by enc= ouraging its employees to invest heavily in Enron stock without warning the= m of the risks of doing so. Enron's stock, which peaked at $90 in August 2000, closed at $4.74 on Frida= y, after falling sharply in recent weeks amid a series of damaging financia= l disclosures. A broadly similar suit filed by the Keller Rohrback law firm= , also Seattle based, alleges that another Enron employee, Pamela Tittle, l= ost $140,000 on Enron stock held in her retirement account. According to th= at suit, the Enron retirement savings plan had assets worth $2.1 billion at= the end of last year, including $1.3 billion, or 62 per cent of the total,= in Enron stock. DOUBTS EMERGE ABOUT DYNEGY DEAL Enron, a former Wall Street favorite, agreed to be bought out earlier this = month by smaller energy trading rival Dynegy Inc., but continuing problems = at Enron have caused some analysts to question whether the deal will be com= pleted. Doubts have also been expressed about a planned sale of Portland Ge= neral to Northwest Natural Gas. Hagens Berman plans to seek class-action st= atus for its suit and says 21,000 Enron employees could be eligible to join= it. The suit alleges that Enron "locked down" 401(k) retirement accounts o= n October 17, preventing employees from changing the investments they held = in their accounts until November 19. During that period Enron reported its first quarterly loss in four years an= d took a charge of $1.2 billion against stockholders' equity as a result of= off-balance-sheet deals that would later come under investigation by US re= gulators. In that time, Enron shares fell from $30.72 at the close of tradi= ng October 16 to $11.69 on November 19. Enron spokeswoman Karen Denne said = employees' access to the accounts was blocked as part of a previously plann= ed change in the administration of the retirement plan and that the measure= was in effect from October 26. to November 19.Steve Lacey, a 45-year-old e= mergency repair dispatcher who has worked for Portland General Electric for= 21 years, said the measure came at a time when bad news about Enron was fl= ying thick and fast, driving the stock price down at a dizzying pace. "We c= ouldn't take our money out of Enron stock into another portfolio. Basically= they had us locked down to where we had no say over our own future," he sa= id. Lacey declined to quantify his own losses but said he and many of his colle= agues had invested most of their retirement funds in Enron stock because it= had performed better in the past than the other investments available unde= r the Enron plan. Denne said Enron employees were normally able to choose a= mong 18 different investment options, but Enron's matching contributions we= re always made in the form of its own stock. Lacey said he felt sorry for o= lder colleagues at Portland General who had suffered a heavy financial blow= just before they were due to retire, adding that he was only beginning to = realize how serious the consequences could be for himself. "My goal was to = have an extremely comfortable retirement and that may be a little clouded n= ow," he said.( REUTERS ) ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ECONOMIC TIMES, Sunday, November 25, 2001 Enron deal may be reworked=20 LONG weekend of work faced Dynegy and proposed acquisition Enron, whose wor= sening stock woes on Friday whipped up fear that the deal could be renegoti= ated or collapse entirely. Houston-based Dynegy and its advisers were expec= ted to spend the long holiday weekend reviewing larger cross-town rival Enr= on's complex books, as both parties race against the decline in Enron's sto= ck to complete the thorough financial examinations a merger requires. Enron= shares ended down more than 5 per cent, or 27 cents, to $4.74 at the close= of abbreviated Friday trading on the New York Stock Exchange. Dynegy share= s closed up 64 cents, or 1.61 per cent, to $40.40. Dynegy on November 9 agr= eed to pay about $9 billion in stock for Enron. But, after falling 45 per c= ent by Friday's close amid fears it could run out of cash before the deal c= loses, Enron's market capitalisation is only about $4.03 billion. At Dynegy= 's current stock price, its offer for Enron is worth about $10.85 a share -= more than twice Enron's current share price. Executives from both companie= s are in the final stages of the review, sources said. They added that rene= gotiations had not been discussed as of Friday, and that such discussions c= ould not occur until the due diligence is finished. But should it turn up a= ny more unpleasant surprises in Enron's business, the likelihood increases = of Dynegy invoking escape clauses, analysts and observers said. ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE FINANCIAL EXPRESS, Sunday, November 25, 2001 Pune-based NGO wants limited role for Merc in setting MSEB tariff, Sanjay J= og=20 The Pune-based non-governmental organisation (NGO) Prayas alongwith Mumbai = Grahak Panchayat, Mahratta Chamber of Commerce and Akhil Bharatiya Grahak P= anchayat have jointly appealed to the Maharashtra Electricity Regulatory Co= mmission (Merc) that the Maharashtra government should not be accorded spec= ial privileges and its role in the determination of tariff of Maharashtra S= tate Electricity Board (MSEB) should be limited. These organisations have p= ointed out that unless the state government was prepared to compensate MSEB= in the manner determined by Merc, it has no authority to interfere in the = tariff determination process. "Though under section 39 of the Electricity R= egulatory Commission Act (ERCA), the state government has the authority to = issue policy directives to the State Electricity Regulatory Commission (Ser= c), section 29 clearly specifies that the Serc has to determine the tariff = and also specifies certain guidelines for the same," organisation said. The= se organisations have observed that guidelines for determining tariff do no= t include any "policy directive" from the state government. Commenting on t= he state government's affidavit suggesting reduction in the 19 per cent tar= iff hike proposed by MSEB for 2001-02, they have called upon Merc not to ac= cept any variation in tariff proposed by the state government as "policy di= rective."=20 These organisations have expressed surprise over the state government's sub= mission that there was a difference between the government and MSEB. They h= ave also questioned the state government's request that the Merc should tak= e an appropriate steps in order to ensure agreement between state governmen= t and MSEB. These organisations, also, have made it clear that the tariff d= etermination was under the exclusive domain of Merc and it has to give an o= rder based only on the evidence that comes before it through various affida= vits and submissions. "The ERCA does not allow any other role or mechanism = for Merc or any other party in the context of tariff revision. As such, we = request Merc from taking any steps to help MSEB and the state government re= ach an agreement. This aspect be left to the state government and MSEB," th= ey added. Sources said that the state government is likely to make a fresh = affidavit on giving policy directives to the Merc as well as providing comp= ensation to the MSEB by November 28.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ BUSINESS STANDARD, Monday, November 26, 2001 Maharashtra may have to pay Rs 60000 crore to MSEB: Godbole=20 Maharashtra may have to pay a whopping Rs 60,000 crore to the Maharashtra S= tate Electricity Board (MSEB) if it fails to resolve the Enron imbroglio am= icably, Madhav Godbole, chairman of the energy review committee, has said. = Godbole blamed the inefficiencies of state-run undertakings for the Enron c= risis and said the only way to avoid a recurrence was to privatise MSEB. Po= liticians and the employees' union would oppose privatisation of MSEB, but = its dismal performance and growing transmission and distribution losses hav= e left little option but to go for privatisation in a phased manner, Godbol= e said. He urged the people to mount pressure on the state government on th= e issue and stressed it was necessary to avoid such disasters.=20 Delivering the second E F Schumacher memorial lecture here, instituted by N= agpur University in association with Dr Padmakar Sapre, Godbole painted a v= ery gloomy picture of Maharashtra's economy, noting that the state was on t= he verge of bankruptcy owing to "suicidal policies followed by successive g= overnments." Speaking on 'financial management of Maharashtra: problems and= perspectives,' Godbole stressed the need to introduce stringent policies t= o get over the messy financial situation. He advocated re-introduction of z= ero-based budgeting and fixing priority, so as to curb unnecessary expendit= ure. Godbole said, despite ten years of economic liberalisation, very littl= e has changed. Fiscal deficit in 1990-91 was 9.49 per cent, and it remains = where it was. Revenue deficit had gone up from 4.2 per cent to 6.2 per cent= in 2000-2001.=20 The public sector savings have touched an all-time low of 1.2 per cent and = consumption expenditure was on the rise. Godbole pointed out that 58 per ce= nt of the state budget was spent on wages and 23 per cent on payment of int= erest leaving very little for capital investment. He claimed that Maharasht= ra was doling out Rs 18,000 crore as subsidies under various heads and has = become the highest subsidy-providing state in the country. When Central ass= istance was dwindling due to the new formula of allocation from a Central p= ool, states such as Maharashtra would receive a lesser share in coming year= s, he said.=20 He came down heavily on the misuse of state funds by co-operative societies= and charged that a promoter had to invest only 2 per cent amount while the= rest was made good by the state government. Heavy spending on higher educa= tion must be stopped forthwith, he said, adding that the society must learn= to take care of such sectors by itself without burdening the state. The mo= ney thus saved should instead be diverted towards primary education, he sai= d. Godbole pointed out that the annual budget was irrelevant because of inc= reasing off-budget transactions, which were out of public scrutiny. He said= , due to overall mismanagement, the state government was forced to resort t= o go for overdrafts for a period of 37 days in 2000-2001.=20 Godbole said populist schemes such as the monopoly cotton procurement schem= e (MCPS) had no place in a globalised economy and its rising losses were a = matter of great worry. He criticised the state government for delinking cot= ton price from the prevailing market price and stated that the basic purpos= e behind MCPS had been lost in the race for reaping electoral gains. Godbol= e strongly advocate enactment of a 'Budgetary and Financial State Managemen= t Act' to check unnecessary expenditure and fiscal discipline. He criticise= d the state government for extending loan counter-guarantees to various und= ertakings under its control.=20 Till date, the state government had extended counter-guarantees for loans w= orth Rs 2.34 lakh crore, he said. "This was done when the total annual rece= ipts of the state were merely Rs 35,000 crore," he said. Godbole advocated = downsizing of the government and a ban on fresh recruitment. An attractive = voluntary retirement scheme (VRS) should be offered to employees and contra= ct-system be introduced, he said. He also supported the concept of contribu= tory pension for employees and pointed out that under the present scheme, t= he state government was burdened with paying a sum of Rs. 2600 crore to fiv= e lakh pensioners. A state expenditure commission must be set up immediatel= y for reviewing of expenses incurred by the state on permanent basis, Godbo= le suggested. Nagpur University vice-chancellor Arun Satputaley presided ov= er the function.=20 ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ---------------------------------------------------------------------------= ------------ THE ASIAN AGE, Saturday, November 24, 2001 BJP loan costs state Rs 6,000 cr, Olga Tellis=20 Maharashtra is still reeling financially from the three major actions of it= s predecessor government. One, it ran up debts of Rs 40,000 crores in five = years; two, it formally permitted the second phase of the Dabhol power proj= ect after declaring that it would throw Dabhol Phase 1 into the Arabian Sea= ; and three, it hurriedly announced the implementation of the Fifth Pay Com= mission award. Maharashtra is paying Rs 6,000 crores in annual interest on = bonds and loans that the predecessor Sena-BJP government accumulated during= its five-year rule. Senior Congressman and Cabinet minister for labour Sat= ish Chaturvedi said the Congress ruled the state for 35 of the 41 years tha= t the state has been in existence. During these 35 years, the total debt bu= ilt up by Congress governments was about Rs 15,000 crores. As against this,= the Sena-BJP in five years borrowed merrily and issued bonds for approxima= tely Rs 45,000 crores. So its successor Democratic Front government, led by= the Sonia Gandhi and Sharad Pawar Congress respectively, is paying a cripp= ling Rs 6,000 crores interest annually within specified time limits. Speaki= ng to The Asian Age, Mr Chaturvedi said that at stake is more than Maharash= tra's prestige as the favoured industrial destination of the country for th= e rest of the world because, if the state falls back on its interest paymen= ts, it will also restrict its capacity to borrow.=20 Maharashtra's annual budget is Rs 16,000 crores. Out of this, Rs 6,000 cror= es goes straight away as interest payment. The second burden left behind by= the Sena-BJP is the permission given to Enron to go ahead with phase two o= f the Dabhol power project, besides increasing the total capacity of the pl= ant. This phase two will impose an annual encumbrance of Rs 6,000 crores, w= hether or not the state uses the power. The state, as the senior minister s= ays, "absolutely cannot survive this financial burden that will be imposed = when phase two of Dabhol comes on stream." The state does not want the proj= ect but the financial institutions led by IDBI, who are caught in a trap, w= ould want the project to be completed so they don't have any liabilities th= at will arise with the lenders if the project is scrapped. IDBI has stood g= uarantee for Rs 5,500 crores. Additionally, if the state loses the arbitrat= ion proceedings currently on in London, the claims on it will be around Rs = 500 crores.=20 The third and equally devastating financial burden is the acceptance of the= Fifth Pay Commission award which the Sena-BJP government announced shortly= before its term ended. Paying just 50 per cent of the DA has cost the gove= rnment around Rs 250 crores to Rs 300 crores. The government has not paid t= he workers' bonus as it would have cost Rs 750 crores and this does not inc= lude the pensions, which would run into several hundred crores. Maharashtra= is among the three states that have accepted the Fifth Pay Commission, the= others being Tamil Nadu and Gujarat. The state also has a problem meeting = commitments given to cotton growers who dominate the Vidarbha region. The l= oss to the government in the monopoly purchase of cotton is said to be arou= nd Rs 800 crores.=20 The Centre has announced a support price of Rs 1,800 per quintal while the = state is committed to purchase cotton at Rs 2,300 per quintal. The price of= cotton in the market is Rs 1,400 for imported cotton. There are about 22-l= akh to 23-lakh bales of cotton lying in the market yard. If the government = disposes of this cotton at the market price, it will lose Rs 350 crores. So= the government has to arrange for Rs 3,500 crores for the cotton monopoly = scheme. The state is also in a Catch-22 situation as far as the state-run t= extile mills are concerned. The government is currently spending Rs 20 lakh= s per day running nine textile mills. Two mills out of these have now been = shut and the workers given VRS, which cost the government around Rs 20 cror= es to Rs 30 crores. If they are to close down the seven others, they will h= ave to arrange finance of Rs 250 crores. So their dilemma is whether to con= tinue to pay Rs 20 lakhs a day or get this lumpsum of Rs 250 crores and clo= se the mills at one go.
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