By Scott Wright
SHARES in Cineworld suffered a further rout yesterday after the struggling cinema chain confirmed it was exploring restructuring options that could “result in a very significant dilution of existing equity interests”.
The world’s second-largest cinema group saw a further 20.5 per cent wiped from its stock market worth after it reiterated that investors would lose out in the event it concludes “any deleveraging transaction”.
Shares in the company closed the day at just 3.24p, meaning that they have lost more than 90% of their value since the start of the year.
Cineworld, which has eight cinema halls across Scotland, responded yesterday to press reports circulating on Friday that it was poised to file for chapter 11 bankruptcy in the US, which caused shares to tumble by around 60% on that day.
The speculation on Friday came after it had told the City just two days before (Wednesday August 17) that recent audience numbers had been “below expectations”– despite a “gradual recovery of demand” following the easing coronavirus restrictions in April 2021
On Wednesday the company blamed a “limited film slate that is expected to continue until November” and warned that the lower admission levels were “expected to negatively impact trading and the group’s liquidity position in the near term”. It added then that it was evaluating options to “both obtain additional liquidity and potentially restructure its balance sheet through a comprehensive deleveraging transaction”.
The company said: “Any deleveraging transaction will likely result in very significant dilution of existing equity interests in Cineworld.”
While last year saw a host of blockbusters released, including the much-delayed and hotly anticipated James Bond film No Time to Die as well as a surfeit of new Marvel films, draw in film fans, this year has been notably quieter for big budget releases.
In a statement yesterday, Cineworld, which owns the Regal cinema chain in the US, said that its options for restructuring could include a voluntary chapter 11 filing for bankruptcy in the US, alongside “ancillary proceedings in other jurisdictions as part of an orderly implementation process”.
Noting that it has been holding talks with major stakeholders, including secured lenders and their legal and financial advisers, the company said: “Any such filing would be expected to allow the group to access near-term liquidity and support the orderly implementation of a fully funded deleveraging transaction.
“Cineworld would expect to maintain its operations in the ordinary course until and following any filing and ultimately to continue its business over the longer term with no significant impact upon its employees.
“As previously announced, any deleveraging transaction would, however, result in very significant dilution of existing equity interests in Cineworld.”
It added: “Cineworld’s evaluation of these strategic options remains ongoing. A further announcement will be made if and when appropriate.”
Russ Mould, investment director at AJ Bell, played down the impact on Cineworld from the wider challenges facing the industry, such as the rise of streaming services from the likes of Netflix and Amazon, and highlighted pressure on the group’s balance sheet following its acquisition of Regal in the US for $3.6bn in late 2018. When the company reported its preliminary results in March, it reported that net debt had increased by $492.7 million, from $4.3bn to $4.8bn, by December 31.
Mr Mould said: “Cineworld may still be open for business but it has confirmed Friday’s speculation that it could file for Chapter 11 bankruptcy in the US. While it might provoke a few dozen think pieces on the demise of the cinema, in reality, Cineworld’s problems stem from an overly aggressive growth strategy which relied on using huge amounts of debt to buy US chain Regal.
“This may have made Cineworld one of the largest cinema operators in the world, but bigger isn’t necessarily better and the pandemic swiftly exposed the company’s strained balance sheet.
“Filing for bankruptcy in the US to allow a restructuring of its finances probably gives Cineworld more flexibility than if the business went into administration under UK rules. However, shareholders don’t need a movie trailer to tell them more pain could be coming their way.”
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