Choose your villain in the depressing no-action cinema thriller. The top nomination goes to the distributors of the James Bond franchise who have killed the Christmas season for the cinema industry by shunting the release of No Time To Die into next spring.
Then there’s Andrew Cuomo, the New York state governor, who has helped to frighten Hollywood studios by closing the city’s screens. Cineworld itself, now planning to shut all its US and UK cinemas for an indefinite period, is hardly blameless. It is carrying $8.2bn (£6.3bn) of net debt, including lease commitments and its over-leveraged position existed before Covid-19 hit takings.
While rivals experiment with reduced hours (a better choice for UK employees whose wages can be partially supported via Rishi Sunak’s new scheme for part-timers), Cineworld has opted for corporate hibernation and pushing its zero-hours workers out into the cold. One aim, one assumes, is to show landlords it really can’t afford to pay rent.
That does not, though, remove Cineworld’s urgent need for fresh funds. Even before the Bond news, the company was set to breach banking covenants at the end of this year. “All liquidity raising options are being considered,” said the company on Monday, but none look attractive or easy.
Last month’s $250m private placement came at a nose-bleed interest rate of 11%. Any conventional equity-raise would require the participation of the chief executive Mooky Greidinger and his trust, which owns 20%; their appetite and ability is unknown. As for UK government support, it looks impossible: the chancellor can’t influence Hollywood release schedules.
The corporate prize for surviving somehow is, potentially, a bumper 2021 as the pent-up supply of potential blockbusters is released. But Cineworld’s path to survival in recognisable form looks more uncertain than ever. At 25p share price, down 36% on Monday, the company is valued at just £346m and its debt is rated as junk.
The rating agency Moody’s last month speculated about the possibility of a debt-for-equity swap, which would be a standard way to resolve a financial mess of this scale. For shareholders, though, the terms of any restructuring are the crucial bit. With Bond films, you know the ending at the outset. That does not apply at Cineworld.
Sunak needs to tweak his tone if he wants to instil confidence
Rishi Sunak’s winter economic plan is less than a fortnight old, so the chancellor was never likely to use the Conservative party’s virtual conference to unveil new measures. Rather, this was a speech in which the main interest was tone and emphasis.
“Hard choices are everywhere,” was the gist of it. A Conservative government has “a sacred responsibility” to balance the books for the next generation, which means getting government borrowing and debt under control.
It’s not the first time Sunak has made such points, but put yourself in the shoes of a small business pondering whether to retain or shed employees. Is another round of warnings about hard months ahead really what you want to hear at this point?
True, Sunak also said the “overwhelming might of the British state” would be placed at the service of the British people. But what he was really advertising was the Treasury’s traditional paranoia about losing the confidence of financial markets as debt mounts.
A chancellor must be seen to worry on that front, of course, (especially when January’s trading relationship with the EU remains unresolved), but the short-term necessity is also to protect business confidence and investment, which financial markets also care about. Sunak should tweak his tone.
More predictable earnings make share rerating a good move
Is Weir Group, the 150-year-old Glasgow engineering firm, the FTSE 100 index’s next technology company?
Well, the 16% share price rise that greeted the $405m (£314m) sale of the oil and gas division to Caterpillar of the US puts Weir within striking distance of the 100 club at the next rejig. And, while emergence as “a focused, premium mining technology business” does not conjure images of artificial intelligence or suchlike, it’s fair for Weir to claim it now has a more 21st-century feel.
The tech in question is kit to extract, grind and process ores for big miners who are themselves looking to reap the benefits of a changing global energy mix. Solar panels and wind turbines require huge quantities of copper, for example. Servicing that end-market looks a safer bet that relying on volatile US shale companies to buy your pumps.
Weir has £2bn of revenues already from the mining industry and earnings now look more predictable, thus the rerating of the shares. Good move.