Cineworld Group PLC (LSE:CINE) shares have fallen almost 99% from over £2 to less than 3p since the start of the pandemic, but are likely to be worth even less, short seller Argonaut has warned.
The transatlantic cinema chain confirmed on Monday that it is mulling whether to file for Chapter 11 bankruptcy in the US and in other jurisdictions to enable it to restructure.
Barry Norris, whose Argonaut Capital Partners has been shorting the company for four years, said “equity holders will get zero” in an interview with Bloomberg.
The manager of the VT Argonaut Absolute Return fund picked apart the business model of the former FTSE 250 company, saying its capital structure “is completely unsustainable and that’s why it’s going bust”.
Cineworld came into the pandemic in early 2020 with US$3.5bn of net debt and US$4.2bn of finance leases after acquiring US rival Regal for US$3.5bn in 2018.
Norris said management used “too much financial debt” to do its deals in what is “a sunset industry”, with several million also due to be paid to Canadian rival Cineplex (TSX:CGX) after Cineworld walked away from a deal.
The hedge fund manager said as the company took furlough money to pay its employees during the pandemic but management continues to pay themselves millions “this is not a company you should feel sorry for in any way”.
Cineworld said on Monday that its movie theatres in the UK and US will continue to operate and it “would expect to maintain its operations in the ordinary course until and following any filing and ultimately to continue its business over the longer term with no significant impact upon its employees”.
Encouragement fades
The shares fell another 11% to 2.67p on Wednesday, having started the month above 20p and having topped 30p in March when boss Mooky Greidinger told investors that he was encouraged by the "strong" performance at the start of the year a "highly anticipated movie schedule" in 2022.
However, earlier this month the shares tanked as Greidiner and co cautioned that the chain was attracting fewer moviegoers than expected and so was considering a “deleveraging transaction” that could dilute the stakes of existing shareholders.
Cineworld blamed a lack of big-budget movies to draw in customers.
“These lower levels of admissions are due to a limited film slate that is anticipated to continue until November 2022 and are expected to negatively impact trading and the group's liquidity position in the near term,” a statement said.