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Thomas Cook shares plunge as it signals cash crunch worse than feared

“Shareholders face significant dilution – it’s wipe out time," said Markets.com's Neil Wilson

Thomas Cook Group -
Thomas Cook has been crushed by poor trading and a huge debt pile

Thomas Cook Group PLC (LON:TCG) has indicated that its financial position is worse than previously thought after saying it is seeking an extra £150mln from creditors. 

The cash injection would be on top of the £750mln rescue package that it looks set to agree with major shareholder, China’s Fosun, and its lenders.

Thomas Cook said the extra money would “provide further liquidity headroom through the coming 2019/20 winter cash low period and ensure the business can continue to invest in its strategy".

It reiterated that existing shareholders were likely to be “significantly diluted” as part of its proposed recapitalisation.

Shares in the tour operator plunged by more than 18% around noon to 7.85p.

It's wipe out time for shareholders, says analyst 

Neil Wilson, chief market analyst at Markets.com, said the latest announcement suggests the cash crunch facing Thomas Cook ahead of the winter season is “worse than feared and points to the precarious position of the balance sheet”.

“Shares had been buoyed up post the July 12th announcement amid some doubts the deal would go through – existing shareholders were hopeful that instead TCG could flog its airline and somehow salvage some value,” he said.

He added: “Shareholders face significant dilution – it’s wipe out time. Since that time the market cap of the group has fallen to around £125m, with net debt of around £1.25bn. Fosun will be left entirely in control. This is massive deleveraging at the expense of shareholders – harsh medicine but entirely needed.”

Tough trading and massive debt pile 

In May’s first half results, Thomas Cook issued its third profit warning in less than a year, saying British customers have put off travel plans because of Brexit uncertainty. It made a first-half loss before tax of £1.5bn for the six months to March 31, compared to a loss of £303mln a year ago, as it took a writedown on UK package holiday unit MyTravel.  

Thomas Cook, which has debts of £1.2bn, also said it had agreed a £300mln lending facility with banks but it was not enough to save the business. 

In July it said it was in talks for a £750mln rescue deal that would see Fosun would take a majority stake in Thomas Cook’s tour operator business in exchange for £450mln of capital. Lenders would provide the remaining capital for a minority stake in the tour operator business and a majority stake in the airline unit.

“The July trading update also showed things not improving much– as noted on several occasions the problem for Thomas Cook is the publicity from its financial predicaments will be putting customers off booking with the company,” Wilson said.

“The update also showed that it’s going to be difficult if not impossible to flog the airline for anything like the amount it would want.”

Wilson said the only outstanding question seems to be whether Fosun runs foul of Chinese regulators, which are concerned about companies overleveraging to fund acquisitions, particularly in light of the escalation of the US-China trade war, the ensuing worries around the yuan and any large-scale capital outflows.

 

Quick facts: Thomas Cook Group

Price: 3.451 GBX

LSE:TCG
Market: LSE
Market Cap: £56.64 m
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