Independent News & Media has become the latest victim of "Enronitis" with heavy selling of the group's shares yesterday by three Irish and British institutional investors.
"Enronitis" is the new buzzword for companies whose accounting practices and treatment of debt are seen by investors as less than transparent.
More than 14 million Independent shares - about 15 times the daily average turnover - were traded yesterday as the share fell as low as €1.60 before recovering to close down 20 cents on €1.65. Dealers said that at €1.60 there was plenty of demand for the shares and they were well supported at that level.
"The sellers are out of the way so the share should gradually recover," said one dealer.
No spokesman for Independent was available for comment.
One dealer said that, after the Enron collapse, Independent was being penalised by some sections of the market for three reasons: it has a very high level of debt - an estimated €1.3 billion (£1.02 billion) at end-2001; the structure of the debt is complicated; and much of the debt is off-balance sheet.
"Given the current sentiment, any balance sheet not seen as plain vanilla is being given the treatment," said the dealer.
After the restructuring of its Australian and New Zealand media assets late last year, Independent's APN associate shouldered €450 million of the group's net debt.
But the merger of Independent's wholly-owned Wilson & Horton subsidiary with its partially-owned Australian associate APN has meant that Independent no longer has full access to W&H's cash flow.
In a research note after Independent's €100 million share placing in December, Merrion Stockbrokers analyst Ms Niamh Brodie said Independent would only receive cash flow from the Australian and New Zealand operations in the form of equity and convertible dividends.
"Consequently we estimate the group's accessible cash flow at €69 million in 2002. This provides little excess over expected dividend payments of €52 million and no room for meaningful debt paydown.
"Consequently, despite this restructuring, in our view Independent News & Media remains financially constrained," the Merrion analyst said in her note.
