Cineworld shareholders ‘will get zero’ if it files for bankruptcy, says short seller
Cineworld was “run on a wing and a prayer” and will leave shareholders with nothing if it files for bankruptcy in the US, a short seller of the firm said today.
Barry Norris, chief of London-based Argonaut Capital which has reportedly shorted Cineworld for four years, said the firm’s pursuit of debt-funded deals had left it with a “completely unsustainable” capital structure.
Cineworld is teetering on the edge of bankruptcy after racking up huge debts in its acquisition of US Chain Regal, which saw it saddled with $4.84bn in net debt, and it also faces nearly $1bn in damages to Canada’s Cineplex after it walked away from a takeover bid.
Norris said the financial difficulties were of its own making. “This is not a company you should feel sorry for in any way,” he told Bloomberg TV in an interview, claiming it was “run on a wing a prayer”.
“The management team at Cineworld used too much financial debt to acquire an empire in a sunset industry,” he said.
His comments come two days after chiefs at the cinema chain confirmed they were mulling a number of options for how to restructure the business, including a Chapter 11 filing in the US.
They insisted that Cineworld’s cinemas “remain open for business” and that there would be “no significant impact” on jobs at the group, which also runs the Picturehouse chain of cinemas in the UK.
Shares in Cineworld have been in freefall since Friday, shedding over 70 per cent of their value. The firm’s value has tumbled nearly 95 per cent over the past year as its financial difficulties grew amid a slowdown in cinema footfall.
The plummeting share price has placed the group among the most shorted stocks on the London Stock Exchange over the past months, but investors have been cashing in their positions in recent days as the price has plunged.
As much as 8.51 per cent of its stock was held in short positions at the beginning of this month, but the figure has now fallen to 5.76, according to Morning Wire analysis of short positions disclosed to the FCA.
Asset manager Whitebox advisors has reduced its short position from 2.36 per cent to 1.9 per cent in recent days, while Enhalus Capital has exited its position altogether.
New Holland Capital has also sold a portion of its position and reduced the amount of Cineworld’s stock held short from 2.19 per cent to 1.22 per cent.
Cineworld has been contacted for comment.