Debenhams share price crashes as it asks shareholders to risk equity on £200m loan
Debenhams’ shares tanked this morning as it asked investors to sign off a £200m funding lifeline that could lead to shareholders’ equity being wiped out.
Read more: Debenhams on the verge of sealing £200m funding from lenders
The £200m funding would prevent the embattled department store chain from falling into the hands of billionaire Mike Ashley.
But the Sports Direct owner, who holds a 30 per cent stake in Debenhams, and all other current shareholders, could see their equity disappear.
If the £200m funding is secured, Debenhams confirmed it would pursue a variety of restructuring possibilities, adding that “certain of these options – if they materialise – would result in no equity value for the company's current shareholders”.
The retailer’s fractional share price lost more than half its value as investors sold out, dropping 58 per cent to 1.24p.
Earlier this month Debenhams revealed it was in “advanced negotiations” with lenders to secure £150m, but has upped that to £200m after Ashley matched the sum in a loan offer.
However, that came with a catch that Ashley would become chief executive and Sports Direct would acquire another five per cent stake in the retailer.
Ashley is already fighting to wipe out Debenhams’ board and appoint himself to it as he seeks to take control of the retailer’s future direction.
The £200m lending package could put Debenhams into administration and sold to its lenders, according to Sky News, with FTI Consulting set to handle the administration.
Current plans could see up to 20 stores close, with dozens more in the firing line as an administration could result in a debt-for-equity swap to slash the chain’s £560m debt pile.
Read more: Sports Direct reissues its call for Ashley to be given a top Debenhams job
Today Debenhams said the £200m loan would “provide liquidity headroom for Debenhams' future funding needs and deliver stability for its customers, staff, suppliers and pension holders”.