Shorts still circling Enbridge, despite recent gains

For the time being, a minimum of, the problem will stay something of a mystery.

We are referring to 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 by the TMX, rapid position in Enbridge as of March 15 stood at 43.396 million shares. At that 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 which was 10.598 million shares higher than the mid-February 2016 level. Accordingly within the period, mid-February to mid-March rapid position expires by 6.203 million shares. Over that four-week period the shares are up by almost $5 – or more than 10 %.

The expectation could be that the short position might have declined substantially within the first reporting duration 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” within the wake from the large equity financing and also the subsequent stock price gain: you will find better places to become than having to cover a brief position when the stock is moving higher. “Raising capital will have a tendency to shake off some shorts,” said one fund manager at that time.

Related

A short story about Enbridge’s financing, having a twistBanks take maximum amount of Enbridge stock, boosting financing to $2.3 billion

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, which means that it has gained more than 20 per cent in the issue price. Some analysts have attributed the recent rally within the stock price towards the begin the oil price.

The talk at the time was that the short position had developed given the consensus view that Enbridge would have to raise equity at some stage (given its capital expenditure needs) which a plan to market the stock short and purchase it back later for less money would repay.

And so the argument rang, what better place to cover rapid position than from an allocation in the new issue – which investors knew could be costing a price reduction to the selling price.

Perhaps, only one hedge fund manager said that “the fills” given to his ilk are occasionally under adequate when the underwriter knows the firm is brief the stock. In that situation the fund is forced in to the sell to buy shares to cover their short position.

But instead of falling, the short position build-up continued after Enbridge announced its equity offering. At the time the sensation was it’s due to a one-day difference between once the TMX reports the short position (Feb. 29) so when Enbridge closed its financing (March 1.)

“Wait till the next reporting period, it will all come clear,” noted one market participant when reacting towards the 10.598 million short position rise in the final fourteen days of February.

Well, the following reporting period is here and the short position continues to be large. All of which implies that we’ll look with interest in the next short position that’s posted at month end.

Financial Post

bcritchley@nationalpost.com