- Warning of ‘very significant dilution of existing equity’
- Stock loses more than 43% as investors race for the exit
- Movie theatre chain buckles under $4.8 billion net debt pile
It’s another victory for short sellers after Cineworld (CINE) warned it may have to dilute shareholders with a massive balance sheet restructuring.
Cue a share price collapse of more than 43%, leaving the firm’s stock trading at just 11.75p and the movie theatre operator with a market capitalisation of just £94 million compared with a valuation of more than £2.4 billion little more than three years ago.
In June 2022, Shares revealed that Cineworld had been the most shorted stock on the UK stock market since January as the company buckled under its $4.8 billion net debt.
In June, 8.2% of its shares were in the hands of short sellers, who profit when share prices fall.
The latest data from shorttracker.co.uk, a website which calculates short interest on UK stocks, showed this had eased to 7.5% as of market close on 16 August, putting the shares second behind Kingfisher (KGF).
DOWN WITH LONG COVID
The pandemic has been an absolute disaster for Cineworld, owner of the UK Picturehouse chain, and its slow recovery from that has not helped.
Its woes have been further complicated by the ill-judged $3.6 billion acquisition of Regal Entertainment, the US cinema chain, and a decision to expand deeper into the US through an agreed takeover of Cineplex right before Covid struck.
That deal was eventually abandoned, but it saw Cineworld ordered to pay a $970 million in damages, putting its balance sheet under serious strain. Cineworld is appealing that decision.
INVESTORS HIDE BEHIND THE SOFA
So here investors are, with Cineworld saying film-goer numbers have been ‘below expectations’ recently because of a ‘limited film slate that is anticipated to continue until November 2022.’
This will negatively impact trading and the group’s liquidity position in the near term, it warned.
‘Any deleveraging transaction will likely result in very significant dilution of existing equity interests in Cineworld’, it added.
Investors will be dreading finding out just how much, or indeed how little, equity value will be left in Cineworld, even if it manages to get an inevitably deeply-discounted rescue cash call away. They’ll be watching from behind the sofa.
