Trying to determine the reason why behind the dramatic share price moves of Enbridge Inc. in the last little while is an exercise that would tax the sharpest of minds. So when some of the people sharps minds are willing to participate in conspiracy theories the situation becomes much more intriguing.
What all participants are attempting to understand would be the dynamics, that saw the shares rise by $3.84 within the week and by almost $6 in the week\’s low. Those gains took place a time of much larger-than-normal trading volumes.
Those increases have to be considered alongside the news that Enbridge raised $2 billion of equity C that could rise to to $2.3 billion C through the sale of 49.14 million shares at $40.70, a cost set in a very healthy 5.7 percent discount towards the closing cost of the shares on the day that the deal was priced.
The final factor C the one which has got the conspiracy theorists working overtime C is the large recent buildup in the short curiosity about Enbridge. Short sellers participate in that activity because they are convinced the shares will trade reduced the future: In the event that view is true it will allow them to profit from continued falls within the price of the shares since the short sellers covers the short position for less money.
- Enbridge set to raise $2 billion of equity that will meet its needs \’till the end of 2017Why the market is digesting Enbridge Inc\’s $2B equity offering easily
We know that because the end of January, Enbridge\’s share price was off by more than $5: it fell to $43.16 on Wednesday from $48.66; we also realize that within the first two weeks of February, the short position in Enbridge around the TSX jumped to 37.194 million shares from 31.444 million C an increase of 18.3 per cent. (At that time Enbridge had the seventh-largest short position on the TSX.)
In New York, where Enbridge also trades, rapid position buildup was reduced. \”This is a reliable utility stock,\” noted one Canadian participant who had been curious about the increase.
This participant put forward two theories: The underwriters shorted the stock prior to the offering; or \”brilliant speculators who sensed that there would be a 49 million shares issue coming in a knockdown price.\”
While none of those theories could be proven, conversations along with other market participants, note that the large short position and the have to cover might have had an impact in the share price surge. (We will possess some indication when the TSX next reports Enbridge\’s short position.)
Participants obtain that view because the size the offer C an equity offering of $2 billion is five times the total amount that Enbridge raised in mid-2014, the last time that it sold common shares C and the discount; large deals require a large discount, and Enbridge and the underwriters decided to a healthy concession. (On its 2014 equity financing that raised $460 million, the discount was 2.04 percent.)
Put the two together also it could be presumed the selling price (and therefore the necessity to cover rapid) would rise. And that is what went down: on Thursday the shares were up by $2.38 to $45.54, a trend that continued Friday with another gain of $1.44. (On Thursday, volume around the TSX was almost six times normal.)
Other market participants have a different take: They reason that the price of oil has turned into a proxy for Enbridge.
John Whelen, Enbridge\’s chief financial officer, said \”the marketplace perception has existed our capability to raise capital. This can be a very unusual market and investors have tended to focus on macro factors. By pre-funding our equity requirements for the following 2 yrs we\’ve answered the market\’s concern for which is definitely a attractive growth program.\”