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Cineworld's horrorshow debt crisis was a disaster movie in the making long before Covid

·4-min read
Warner Bros
Warner Bros

Give Cineworld one thing; there were clearly no private screenings of today’s horrorshow to its big new investor.

Beijing billionare Liu Zaiwang’s Golden Acumen investment vehicle added an extra 1% of the company to his near-5% stake yesterday – shelling out the thick end of £6 million for the privilege.

Today, they crashed nearly 20% as the group warned it was facing a life threatening cash crisis. Doh!

Chinese walls indeed.

Cineworld is a tale of a business team, if not lacking in Golden Acumen, lacking in luck to the nth degree.

Fuelled by debt and dreams, they spent recent years on a spending spree, splashing out $3.6 billion to buy the Regal chain in the US in 2017 and, as covid was just picking up in Liu’s native China, a further $1.7 billion on Canadian rival Cineplex.

Lockdowns of its entire global cinema chain followed just three months later, putting the two takeovers up there in the worst-deals-ever stakes with Stonegate’s £1.3 billion takeover of the UK pubs giant Enterprise Inns in February.

It has spent the last few months claiming it doesn’t have to go through with the Cineplex deal, but the Canadians are suing – with justification.

(Such litigation is in high fashion. Tiffany is doing the same to its suitor in marriage, LVMH, after it too was jilted, not at the altar, but on the way to the reception.)

Cineworld’s accounts today show us why it bolted on its bride.

Even without the debts it would run up from the Cineplex transaction, its net debt is now running at $8.19 billion, compared to its total asset value of $1.19 billion.

The assets have halved in value after six months of Covid closures, but even last December, it was borrowing $7.6 billion.

These crazy levels of debt are endemic in the cinema world. AMC, owner of Odeon and UCI, is struggling under $5 billion of borrowings after its daft acquisition spree. Like Cineworld, it faces a daily struggle to survive.

They were accidents waiting to happen; covid just happened to be the oil slick on the road that caused them.

So next, the sequel.

It will go like this: major debt restructurings, wipeouts for equity holders and breakup bids all round.

An ugly movie tragedy, not wrought by an Act of God, but by the lead characters’ hubris.

No doubt Mr Liu's stakebuilding is to get a decent negotiating position when the banks, shareholders and vulture funds start to fight over the assets.

Like all decent Hollywood franchises, there'll be a hint at the end of another instalment to follow, and that tells of the prize Liu must have his eye on now.

Because here's the thing: once the global cinema groups sort out their financial structures, they could have a decent time next year.

The release schedule from Hollywood is packed with theatrefillers that have been on hold since lockdown - from Top Gun to Minions via Fast & Furious and Batman. And all that after Bond leaves audiences shaken and stirred in November.

Nine months-worth of movies, backed up like a Brexit lorry queue from Dover, will play to busy theatres, week after week.

Fears of a Covid-caused gap in Hollywood studio productions have proved unfounded. Shooting has begun on a host of new potential hits like Baz Luhrman's take on Elvis with Tom Hanks. There will be no pause in blockbuster output once 2021's packed schedule runs its course.

Barring vicious new lockdowns, box office fortunes could be made.

So here's the last scene of that final instalment of the trilogy.

Dateline London, 2022: a gold-plated Rolls-Royce cruises up to a cinema red carpet. Out steps Liu in a white mink coat, Scarlett Johansson on his arm. Pulling a crisp 50 from a platinum money clip, he tips the driver. He turns to face the fusilade of flashbulbs from the wall of photographers and smiles, thinking: they laughed at my trades in September 2020. Look at me now. the new King of Cinema.

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