Cineworld shares tank on report chain is set to file for bankruptcy
By Frank Prenesti
Date: Friday 19 Aug 2022
(Sharecast News) - Cineworld shares went into freefall on Friday on a report that the world's second largest cinema chain was preparing to file for bankruptcy amid plunging ticket sales after Covid pandemic restrictions were lifted.
The value of the London-listed movie house chain plunged by two thirds in late afternoon trade. Cineworld is labouring under a $4.8bn (£4bn) debt burden and has reportedly hired lawyers and consultants to advise on any bankruptcy.
It operates 751 sites in 10 countries including the Cineworld and Picturehouse chains in the UK, and is expected to file a chapter 11 petition in the US and was considering insolvency proceedings in the UK, according to the Wall Street Journal.
Cineworld's already battered share price crumpled from 20p to 3.4p following the report. Before the pandemic it was trading at £1.97.
Cineworld warned on Wednesday that a lack of big-budget film releases was hitting admissions at its cinemas and would persist until November, hitting trading and the group's liquidity.
"Despite a gradual recovery of demand since re-opening in April 2021, recent admission levels have been below expectations," the company said in a statement, adding that it was still in talks with parties over potential funding, or restructuring of its balance sheet "through a comprehensive deleveraging transaction"
Any deleveraging transaction would likely result in very significant dilution of existing equity interests in the company, Cineworld said.
The company's net debt jumped to $8.9bn at the end of 2021 from $600m a year earlier. It had pinned its hopes on a larger slate of blockbuster sequels such as James Cameron's Avatar 2 and Tom Cruise's Top Gun: Maverick.
However, the Covid pandemic has disrupted filming schedules, leading to lower output. Cineworld earlier this year said it was looking for new sources of cash to meet payment obligations to former shareholders of its US division Regal and a potential multi-million-dollar fine in a dispute with Canada's Cineplex.
The company said it expects operations to remain unaffected despite the near-term hit, and that it expects to meet its business counterparty obligations.
It was a stark contrast to the recent update from US-based AMC Entertainment which said that the new Dr.Strange film and Top Gun: Maverick had seen ticket sales double as American filmgoers had flocked back to the big screen.
"AMC also said that July saw the highest monthly attendance in US theatres since December 2019 as confidence returned. This raises the rather awkward question as to what AMC are doing well that Cineworld clearly aren't, as both can't be right?" said CMC Markets analyst Michael Hewson at the time..
"Either those two films were very popular, or they weren't, and if AMC saw record July admissions, Cineworld probably needs to ask why it didn't. That's the question shareholders need to pose to management."
Hargreaves Lansdown analyst Susannah Streeter said even as a reorganised entity, Cineworld would "face a tough challenge ahead as it's unlikely that ticket sales will ever fully recover to the heady days of the past, given the huge shake-up of the movie industry and the growing might of the streaming giants".'
Reporting by Frank Prenesti at Sharecast.com
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