The story for equity holders is over; if you can, exit

Deutsche Bank

By the end of trading, the stock was trading at just 3p.

Having lost more than three quarters of its value in two days, Energis ended the week with a market value of �50m, just a fraction of its value 14 months ago when it peaked at almost �14bn or around 850p per share.

Investors were coming to terms with the shocking fact that Energis, which was spun off from National Grid in 1997, has seen its market value virtually wiped out.

"No one wants to touch them, it looks like they are going to nought," said one trader.

Going for broke

On Thursday, Energis had announced 400 job cuts and the sale of its �1bn continental European network.

Under Standard & Poor's criteria, a restructuring operation that would worsen the bondholders' original position would be treated as a selective default

Leandro de Torres-Zabala, S&P

"Given the state of telecom markets, we believe that Energis will struggle to find a buyer for these loss-making assets," said Schroder Salomon Smith Barney as its slashed its recommendation to investors to "underperform".

JP Morgan agreed that "there will be minimal value for equity shareholders unless the company can find a buyer for its European assets - which we believe is unlikely".

Schroder said it "would advise any investor to avoid the stock until the restructuring is completed".

"The story for equity holders is over. If you can, exit," agreed Deutsche Bank.

Telecom contagion

The Energis sell-off also spread to its competitor Colt Telecom which fell 34.5% during Thursday and Friday to end the week at 37p, with some analysts insisting that its true value was less than half that.

Investment banks are worried about Colt's outlook

"There are huge funding issues here for Colt, and the continued run on Energis shares is also taking its toll," said a trader.

Merrill Lynch and Morgan Stanley both expressed serious concern about Colt's future after the group on Thursday announced 500 job cuts and forecast slowing growth.

"Without an acceleration in revenue growth, we believe Colt will be unable to raise margins sufficiently to generate positive cash flow," said Merrill Lynch.

"We do not believe demand will recover quickly enough and have therefore cut our opinion," the investment bank said, slashing its recommendation to investors from "neutral" to "reduce/sell".

Morgan Stanley halved its price target for Colt shares from 300p to 150p.

Other telecoms operators were dragged down as well as investors panicked.

Thus, Kingston Communications, Telewest Communications, Marconi and even Vodafone all fell, but BT rose as investors saw it as the safest bet in the sector.

Debt difficulties

Energis on Thursday entered into talks with its consortium of banks about restructuring its �800m long-term debts.

Analysts fear the talks could fail.

On Friday morning, Standard & Poor's reduced its rating of the company's long-term bonds to a lower junk status of CCC- from BB-.

"Under Standard & Poor's criteria, a restructuring operation that would worsen the bondholders' original position would be treated as a selective default," said S&P associate director Leandro de Torres-Zabala.

On Thursday, two executive directors, Bob Taylor and John Beaumont, resigned, Energis said in a statement.