Hedge fund short sellers boosted after staggering Cineworld losses send shares plummeting

Cineworld

Cineworld, a long-standing target of hedge fund short sellers, saw its share price plummet on Thursday after the group slumped to an eye-watering USD3 billion pre-tax loss last year as a result of the coronavirus pandemic.

The beleaguered global movie theatre chain fell by 10 per cent after publishing its preliminary 2020 annual results, boosting those hedge funds taking a bearish stance against the FTSE 250-listed firm.

Polygon Global Partners, Adelphi Capital, AHL Partners, New Holland Capital, and Whitebox Advisors are all holding short positions in Cineworld, according to regulatory disclosures.

Earlier this year, high profile hedge funds Marshall Wace, BlackRock and Citadel Advisors also placed negative wagers on the group, which was forced to temporarily close its 767 cinemas from mid-March 2020 onwards, sending revenues into freefall to the tune of 80 per cent.

In Thursday’s results statement, Cineworld said it has raised USD810.8 million of new liquidity to stave off the effects of what CEO Mooky Greidinger called an “extraordinarily difficult year”. It has also received commitments from institutional investors for a new USD213 million 7.5 per cent convertible bond due in 2025.

The group’s net debt reached some USD8.32 billion at the end of last year, four times that of its market value. Revenues crashed from USD4.3 billion before the pandemic to just USD852 million last year. 2020’s annual USD3 billion loss compares with a USD212.3 million profit recorded in 2019.

“Covid-19 has created a huge amount of stress and uncertainty, both in business and in our personal lives,” Greidinger said in a statement.

“At Cineworld, I never imagined a time that we would see the closure of our entire cinema estate, nor that varying restrictions would remain in place for so long as we continue to navigate our way through this crisis.”

Cineworld has been among the most heavily-shorted publicly-traded UK stocks in recent years, with online streaming and home entertainment services squeezing its business model. But its share price had been trending upwards in recent weeks until Thursday’s statement, spiking during the GameStop saga in late January as online amateur investors drove up the value of several companies targeted by hedge funds. 

The group, which plans to reopen cinemas from 2nd April in the US, 17th May in the UK and throughout May in the rest of the world, is now hoping a strong pipeline of delayed movies coupled with a pent-up demand for affordable out-of-home entertainment will bolster its fortunes this year.

It said the theatrical industry is performing well in re-opened markets such as China, Japan and Australia.

But it warned that renewed Covid-19 restrictions would require the need for additional liquidity, and could raise material uncertainties about its future viability.