Cineworld considers capital restructuring to save indebted chain

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Cineworld is considering a major capital restructuring to save the highly-indebted cinema chain, as it warned of sluggish ticket sales owing to a lack of blockbuster movies.

The world’s second-largest cinema company told shareholders on Wednesday to expect a “very significant dilution” in stock price if it goes ahead with plans to “potentially restructure its balance sheet through a comprehensive deleveraging transaction”. 

The group said it was “in active discussions with various stakeholders and evaluating various strategic options” to obtain additional liquidity and to overhaul its balance sheet.

Cineworld also said despite the easing of Covid-19 trading restrictions over the past year, cinema admission levels remained “below expectations”. The company blamed the weak admissions figures on a “limited film slate” that is anticipated to continue until November this year. It said that this would “negatively impact” trading and the group’s liquidity position over the period.

Shares in the London-listed group fell 41.2 per cent to 12p in early morning trading in response to the announcement. The stock is down 63 per cent year to date. At the end of December, Cineworld’s net debt stood at just above $5bn, nearly 25 times higher than its current market capitalisation.

Ivor Jones, an analyst at Peel Hunt, said the announcement suggested the chain was pursuing “a major fix to the underlying problems of the balance sheet” and not just “another smaller fix”.

Earlier this year, Cineworld averted bankruptcy for the second time in two years despite facing an almost $1bn payout to Canadian rival Cineplex in compensation for a botched acquisition.

Cineworld is appealing against the court-awarded damages but several lenders told the FT at the time they expected the two companies to strike a deal. If Cineworld were to declare insolvency, Cineplex would be one of the last creditors to be paid.

Jones added that a major restructuring of the company would be “made difficult by relatively poor trading and a relatively complex debt structure”. 

Cineworld operates 751 sites across 10 countries worldwide. The company owns the US-based Regal cinema chain, along with Cineworld and Picturehouse in the UK and several other brands in eastern Europe.

Covid-19 trading restrictions over the past two years have coincided with increased competition from streaming services, darkening the outlook for the cinema industry.

Despite Cineworld’s concerns over a lack of high-profile films, two of the most popular films in UK cinema history — No Time to Die, the latest James Bond film, and Spider-Man: No Way Home — were released in the past year.

Another bank analyst, who asked not to be named, said rival Vue’s recent restructuring may “provide a playbook” for Cineworld.

In July, a group of lenders led by US asset manager Barings and hedge fund Farallon Capital took control of Vue International, the UK’s third-largest cinema chain, as part of a £1bn debt restructuring deal, buying out Vue’s previous owners.

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