April 21, 2024

Paull Ank Ford

Business Think different

Saudi Investment Fuels Rally in Carnival Shares

Carnival Corp. shares continued to rally on Wednesday as news of Saudi Arabia’s investment in the world’s largest cruise operator raised investor hopes that it can stay afloat through the coronavirus crisis.

The Saudi kingdom’s sovereign wealth fund disclosed on Monday that it had built an 8.2% stake in Carnival by March 26, purchasing more than 43 million shares. Since then, Carnival stock has jumped 37% from its Friday close, reaching $11.71 on Wednesday.

However, the stock is still down more than 70% since the beginning of the year. The Saudi investment was valued at about $775 million on March 26, when the shares closed at $17.82.

As CNBC reports, Carnival has been scrambling for liquidity “while the coronavirus pandemic cripples the global travel industry,” causing the suspension of operations for Carnival and peers Royal Caribbean Cruises and Norwegian Cruise Line.

In its quarterly earnings report published last week, Carnival said it will be able to remain in compliance with its debt obligations for at least 12 months. The company has nearly $5 billion in debt maturing at, or before, the year ending Nov. 30, 2020.

“We cannot assure you that our assumptions used to estimate our liquidity requirements will be correct because we have never previously experienced a complete cessation of our cruising operations,” it said in the earnings report.

On March 13, Carnival fully drew down its $3 billion revolving credit facility and, last week, announced it would issue 65.5 million in additional shares to raise capital, diluting the Saudi investment.

Of the big three cruise companies, Carnival is best suited to weather a sustained downturn without any revenue, according to UBS Securities analyst Robin Farley. The company could survive for as long as 15 months without making any money, she wrote in a note Monday.

“If Carnival can reinstate some cruises after 12-16 weeks, I do not believe it will become insolvent,” a SeekingAlpha analyst said.

But CCN said cruise companies “are still in dangerous waters,” noting that Carnival will still have to reckon with its growing debt burden long after the virus crisis is over.

(Photo by James D. Morgan/Getty Images for Carnival Cruise Lines Australia)

Carnival Corp., coronavirus, cruise lines, liquidity, Saudi Arabia, Sovereign wealth fund