Saudis Invest in Carnival Corporation

Saudi Arabia’s sovereign-wealth fund, The Public Investment Fund, reported that it has made a significant investment in Carnival Corporation & plc, the world’s largest cruise company. The investment was announced as Carnival also reported the completion of stock and debt offerings designed to strengthen its financial position in the face of significant challenges from the coronavirus (COVID-19) pandemic.

As of March 26, 2020, the Saudi investment fund had acquired over 43.5 million shares of Carnival, amounting to approximately 8.2 percent of the shares outstanding, according to a filing with the United States Securities and Exchange Commission. Established in 1971 by a royal decree, The Public Investment Fund, according to its website, is focused on building a diversified domestic and international portfolio which achieves attractive, risk-adjusted returns by investing across sectors, geographies, and asset classes.  

The investment in Carnival, valued at nearly $450 million based on today’s closing price of the stock, represents a small portion of the Fund’s total assets which are estimated to be valued at over $320 billion. At the beginning of 2020, the Fund also reported holding significant investments in both Tesla and Uber Technologies.

The news of the investment came as Carnival also announced the closing of an offering of 71.88 million additional shares of common stock and $1.95 billion in senior convertible notes. Carnival also said that it expects to close on April 8 on a previously announced private offering of $4 billion in senior secured notes. In total, Carnival anticipates raising over $6 billion from these offerings.

The proceeds of the offerings will be used to help confront the challenges of the global pandemic. On March 13, Carnival, along with all of the other major cruise operators, announced a pause in operations that is currently projected to last until mid-May. In the traditionally conservative language of an offering prospectus, Carnival stated, “We have never previously experienced a complete cessation of our cruising operations, and as a consequence, our ability to be predictive regarding the impact of such a cessation on our brands and future prospects is uncertain.” Carnival reported that it anticipated “the substantial majority of our fleet will be in prolonged ship layup.”

Carnival, like all of the cruise lines, is facing major financial challenges to maintain its operations while also faced with the significant potential liability paying customer refunds for canceled cruises and future bookings. As of the end of February 2020, customer deposits amounted to over $4.7 billion with Carnival reporting in mid-March approximately 45 percent of the guests had accepted future cruise credits in lieu of cash refunds for canceled voyages. Carnival continues to take future bookings for 2020 and 2021, but, of course, at greatly reduced levels as consumers remain uncertain about future travel.

“Carnival Cruise Line’s capital raise last week gives it the longest runway to stay afloat in a zero-revenue scenario,” said UBS analyst Robin Farley in a report released today. Farley estimated that Carnival has 12 to 13 months of funding and that the additional steps, including prolonged lay up for the ships, could further extend the company’s liquidity. The report suggests that Carnival might also be in discussions to possibly delay some ship deliveries and might seek to extend some of the maturities on its export credit facilities used to fund new ship construction.

Today’s news of the Saudi investment, along with the closing of the offerings, was received positively by investors, who are also hopeful that the pandemic may be peaking. Carnival’s stock price jumped 24 percent in heavy trading closing at $10.21 on the New York Stock Exchange.