For now, a minimum of, the problem will stay something of the mystery.
We are talking about the still high short-interest position in Enbridge, a few weeks after it closed a $2.3-billion equity offering after a period of substantial stock price gains.
According to information released Friday through the TMX, the short position in Enbridge as of March 15 stood at 43.396 million shares. At this level, the short position was 4.395 million shares below what it really was at the end of February.
On that date (Feb. 29) the short position stood at 47.792 million shares, an amount that was 10.598 million shares greater than the mid-February 2016 level. Accordingly over the period, mid-February to mid-March rapid position is up by 6.203 million shares. Over that four-week period the shares are up by almost $5 – or more than 10 %.
The expectation was that the short position might have declined substantially in the first reporting period of March because Enbridge closed its equity offering on March 1.
That expectation took it’s origin from what some market participants referred to as a “massive short covering” in the wake from the large equity financing and the subsequent stock price gain: you will find better places to be than needing to cover a brief position when the stock is moving higher. “Raising capital will tend to get rid of some shorts,” said one fund manager at the time.
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In that offering, which was announced Feb. 24, Enbridge sold 56.511 million shares at $40.70 a share. Those who were given an allocation did well given that the shares were trading at $43.16. The stock closed Friday at $49.67, meaning it has gained a lot more than 20 per cent from the issue price. Some analysts have attributed the current rally within the share price towards the begin the oil price.
The talk at the time could be that the short position had built up given the consensus view that Enbridge would have to raise equity at some stage (given its capital expenditure needs) which an agenda to market the stock short and buy it back later at a lower price would pay off.
And therefore the argument rang, selection spot to cover rapid position than from an allocation in the new issue – which investors knew could be costing a price reduction towards the selling price.
Perhaps, only one hedge fund manager asserted “the fills” given to his ilk are occasionally under adequate when the underwriter knows the firm is short the stock. For the reason that situation the fund needs in to the market to buy shares to pay for their short position.
But rather than falling, the short position build-up continued after Enbridge announced its equity offering. At that time the sensation was it’s due to a one-day difference between when the TMX reports the short position (Feb. 29) and when Enbridge closed its financing (March 1.)
“Wait till the next reporting period, it’ll all come clear,” noted one market participant when reacting towards the 10.598 million short position rise in the ultimate two weeks of February.
Well, the following reporting period has arrived and the short position continues to be large. All of which means that we will look with interest at the next short position that’s published at month end.
Financial Post
bcritchley@nationalpost.com
