- Cineworld shareholders wiped out after debt for equity swap
- Restructuring involves $800m of new equity
- Management change likely
Shares in global cinema operator Cineworld (CINE) dropped a further 28% on Monday to 2p after the company abandoned a potential sale of assets to move to a formal debt for equity swap which effectively wipes out shareholder value.
Putting a brave face on developments CEO Mooky Greidinger said: ‘This agreement with our lenders represents a 'vote-of-confidence' in our business and significantly advances Cineworld towards achieving its long-term strategy in a changing entertainment environment.’
The Financial Times reported that the restructuring would likely mean Greidinger ‘relinquishing control of his third-generation family business.’
The business began with a single cinema founded by his grandfather in the 1930’s and the family owns around a fifth of the shares.
The new plan sees the lenders converting approximately $4.53 billion of debt into equity and proceeding with a fresh $800 million fund raise.
The company said the proposed restructuring ‘does not provide for any recovery for holders of Cineworld’s existing equity interests.’
WHAT ARE THE EXPERTS SAYING?
Investment director at AJ Bell Russ Mould commented: ‘Cineworld’s shareholders had been given plenty of warning their investment in the business could be wiped out by a debt restructuring and this looks like it will soon happen.
‘The company’s lenders are going to gain control through a debt for equity swap and a rights issue, giving Cineworld yet another throw of the dice to try and sort out its finances.
‘Assuming the financial restructuring goes through, expect a change in the top management to bring a fresh perspective to the business.
‘Lenders will want to see the value of the equity increase over time and the existing management team has already had its chance to repair things, and that hasn’t gone to plan. Therefore, it’s time for someone else to have a go.
‘Now the industry is going to have to offer something extra to persuade people to go the flicks, which means there will have to be some hard decisions made to make cinemas more appealing such as ticket pricing (make it cheaper?) and comfort (make every seat a recliner?).
‘But that might be the second phase of Cineworld’s recovery. First would be to slim down the size of the estate to focus on the best performing sites and only then think about what to do next.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author of the article (Martin Gamble) and the editor of the article (Steven Frazer) own shares in AJ Bell.
