Royal Caribbean held by Eyal Ofer fell against the background of...

One of the industries hardest hit by the Corona plague is the cruise industry – holiday cruises, and this is reflected in the shares of Wall Street-listed companies, which have lost tens of percent since their highs soared in mid-January.

While last year broke records in the number of holiday cruises and the outlook for 2020 was optimistic, the corona plague has completely changed the picture. Now that one of the most prominent companies in the field – Royal Caribbean, whose shareholders include Israeli billionaire Eyal Ofer, who serves as a director of the company, is required to raise additional money, it also provides difficult data for the near future. The company plans to raise another billion dollars – half of the amount in the issue of shares and the rest in the issue of convertible bonds.

The prospectus also includes the option of a sale offer from existing shareholders, including Ofer, who according to the prospectus will be able to sell most of his holding in the company.

In response to reports of expected acquisitions, Royal Caribbean shares fell 13.2% on the New York Stock Exchange, and shares of competing companies Carnival and Norwegian Cruise Line, which are also traded in New York, lost 7.8% and 8.4%, respectively. From the mid-January high, Royal Caribbean shares lost 55% of the campaign, and competitors lost more – 72% -73%.

Among the victims of the share fall are Eyal Ofer (Idan Ofer’s brother, owner of the Israel Company) who owns shares in Royal Caribbean, and Miki Arison (brother of Sheri Arison, former controlling shareholder of Bank Hapoalim), who holds Carnival shares and serves as the company’s chairman. Through Osiris about 5.3% of Royal Caribbean shares worth $ 684 million – a “on paper” decrease of $ 825 million from the January high; Varison holds a double-digit share of Carnival shares, at a current value of over $ 1.75 billion, a decrease “On paper” of $ 4.7 billion from January.

Lost about $ 3 billion in half

Royal Caribbean has updated ahead of the recruitment that while the bookings for 2021 have improved compared to the last two months, they are still at a low level compared to the period before the Corona plague, and the pricing is similar to last year’s pricing. According to the update as of the end of June 2020, the company had $ 1.8 billion in customer deposits, and the figure should be similar at the end of September as well. About 50% of customers whose orders have been canceled have already requested a refund.

The Royal Caribbean report states that a body called the “Healthy Sailing Panel” (HSP) set up together with competitor Norwegian Cruise Line, which includes experts in the fields of epidemiology and regulation, has submitted to the CDC (American Center for Disease Prevention) recommendations on maintaining vacationers’ health on cruises.

The expected issuance of the shares, amounting to half a billion dollars, is underway with a series of underwriters headed by Morgan Stanley and Bank of America (along with Citigroup, DNB, Goldman Sachs, HSBC, JPMorgan and SEB). Underwriters are given an option to purchase shares for an additional $ 75 million at an issue price for a period of 30 days.

The convertible bond issue is also $ 500 million with an option to increase by an additional $ 75 million. This is a repayable bond in 2023, and the company intends to use some of the issue money to pay part of its 2.65% interest-bearing bonds this year.

According to the prospectus, the company owns 62 ships, which can accommodate close to 140,000 people and sail to more than 1,000 destinations around the world. In 2019, pre-epidemic, the company posted revenue of $ 11 billion, net income of $ 1.9 billion and adjusted EBITDA (profit excluding interest, tax, depreciation and amortization) of $ 3.4 billion – an increase in all parameters compared to 2018.

However, the results of the first half of 2020 reflect Corona’s hit: revenues totaled $ 2.2 billion compared to $ 5.2 billion in the same period last year, and the company posted a net loss of $ 3.1 billion.

“We have taken significant steps to reduce our operating expenses during the suspension of cruise operations,” the prospectus said. Mention is made, among other things, of the reduction in manpower and expenses related to fuel, food and insurance (because the cruises do not depart anyway) as well as the reduction of marketing expenses. In addition, $ 4.4 billion in capital expenditures (CAPEX) were deferred from 2020-2021.

The prospectus indicates the company’s great need for recruitment. The company notes that last February it worked to improve its liquidity, including increasing its $ 600 million existing line of credit, signing a potential $ 2.35 billion loan agreement, issuing $ 3.3 billion in securities and more. As of today, the debt that is due to collapse in 2020 stands at $ 300 million, and in 2021 the amount is $ 1.3 billion. Every month, the company “burns” about $ 250-290 million in cash, as long as its operations are suspended.

An interesting reference to the cruise companies was received yesterday (Tuesday) from the popular American economic commentator Jim Kramer, who said in his program mad money: “What did you expect? The cruise companies need the money.” However he said no matter how good the companies are, “the truth is that right now they are not allowed to sail because of the plague. Call me crazy, but I refuse to recommend a business that is legally barred from doing business. Why would you want to own a company that can not operate?”.

Kramer referred to “young investors” who see the cruise companies as an opportunity to buy at a discount. “Cruise stocks are not like other stocks you play with,” he stressed. “They need money, and they’re happy to take your money when you buy tickets or buy stocks.”

The article was originally published in Globes