Shares of major cruise lines fell broadly on Thursday after Carnival announced a $1 billion stock sale, its second financing in recent months, to pay down debt as the cruise industry continues to be reeling from the Covid-19 pandemic. , inflation has soared and fuel prices have risen.
Shares in major cruise operator Carnival fell nearly 12% on Thursday after the company said it would sell $1 billion worth of shares (just over 102 million) at $9.95 a share, with an option to buy an additional 15.3 million shares .
This is Carnival’s second financing since the bond offering in May, and the company said it “expects to use the net proceeds from the offering for general corporate purposes, which may include resolving debt maturing in 2023.”
Carnival ended the second quarter with about $35 billion in debt — more than its peers — and $7.5 billion in cash, but analysts warned last month that that could hurt if customer demand takes a hit in the form of fewer bookings and cancellation of more deposits. May “shrink rapidly”.
Shares in rivals Norwegian Cruise Line and Royal Caribbean Cruises fell more than 8% and nearly 9%, respectively, as the news spooked investors.
The move to raise more capital could raise more questions about the health of the cruise business, according to a recent report from Stifel analysts, who said the stock sale would dilute existing shareholders by about 8.5 percent.
Despite the negative news, the company believes Carnival is “being proactive” and trying to prepay its debt due next year, something executives have hinted at in previous quarters.
It’s no surprise that Stifel analysts predict that investors will “panic and assume that any cruise-related name may seek to raise equity at some point in the near future.”
Shares in Carnival are down 54% so far this year, while shares in Royal Caribbean and Norway are down 56% and 44%, respectively.
Cruise lines took a major hit during the 2020 pandemic lockdown, with no sailing orders for much of the year. Many cruise lines have faced the pressure of business stagnation, taking on a lot of debt during the period. While cruise demand has since rebounded as travel has returned – a busy summer for major operators, many are still seeing a slow return to full capacity. In a challenging economic environment this year, high inflation and soaring oil prices are starting to negatively impact the industry.
Carnival shares plummet nearly 15% as Morgan Stanley warns of potential stock kills (Forbes)