Cineworld (LON: CINE) (OTCPK: CNNWQ) gives us another update on the Chapter 11 process this morning. The “Rest of the World” business was on the auction block but that process has now stopped. No one was willing to offer enough money to make a sale worthwhile - the RoW business might as well stay with the to be refinanced group and debtors get their money back over time. “ The Group received proposals for the RoW Business from a number of prospective counterparties, however the proposals did not meet the value level required by the Group's lenders.”
Well, OK. That's what the Chapter 11 business is all about. Maximising the value of the business assets so as to maximise the return to those debtors. It is even possible - it happened at Hertz after all - that the return will be so maximised that there will be a payout to the equity. Except as Cineworld makes very clear, this isn't going to happen: “As previously announced, in light of the level of existing debt that is proposed to be released under the Plan, the Proposed Restructuring does not provide for any recovery for holders of Cineworld's existing equity interests.” By any reasonable standard the equity has no value. Not even as an option on the idea that someone will bid some silly amount for some set of the corporate assets. They've been touted around the world for some months now and no one has bitten - they're not going to.
Cineworld trades from London Stock Exchange
Which produces that mystery for us. Someone is buying shares in CINE there. The 0.9, 0.92 trades are clearly purchases, they're at the top end of the spread. As we've said before about Cineworld these shares really have no remnant value. So, why are people buying them?
Other than people closing out short positions we cannot think of any reason why it would be reasonable - even make sense - to be buying CINE at present. Simply because as the company itself says there's just no value to be returned to the equity. Perhaps the speculation makes sense to some but we'd not recommend it ourselves.
