3 thoughts on “MBS takes a PIF punt on an ailing cruise ship company”

  1. Nick Stadtmiller

    As far as I know, the purchase price of these shares has not been disclosed, but based on the time window in which the purchase occurred, it could have been as high as $18 per share – which is where the shares were trading on 26 March, the date on which the share purchases required disclosure (although the filing wasn’t made public until 6 April).
    That’s significant because on 1 April, Carnival issued new shares at $8 each as part of a capital raise. This suggests that either (i) the Saudis did not coordinate their investment at all with Carnival management, or (ii) Carnival seriously screwed the Saudis. In fact, PIF now only owns 7.3% of the company after the share sale, although it was 8.2% when the purchase was made.
    PIF’s purchases in the secondary market may have helped support the share price, but they did not represent an injection of new capital in the company. For that reason, I doubt Arison or any other member of Carnival’s management team feel they owe MbS a favour.
    Certainly there’s going to be some embarrassment – and likely resentment – on part of the Saudis, which probably means the relationship between Carnival and its third-largest shareholder is getting off to a bad start.
    I have no idea the extent to which MbS was personally involved in the decision to make this purchase, but it’s almost certain that Al-Rumayyan was either promoting the idea or actually made the decision himself.
    Even worse, the Saudis had an opportunity to make a much lower-risk investment in Carnival with a decent rate of return. Carnival sold $4bn of bonds last week with a coupon of 11.5%. Of course the upside on bonds is capped, but they could have walked away with an 11.5% profit (per year) as long as the company doesn’t go bankrupt.
    If Carnival’s business is sluggish for the next several years (and there’s good reason to believe it will be), the share price can languish. Bondholders will be made whole in this scenario, however.
    Finally, if the company goes bust, the shareholders will be wiped out. Bondholders generally get a reasonable recovery on their investment, even if they do incur losses.
    Given that the way the investment was structured and subsequent events, I doubt the Saudis have won any influence or favours from this transaction, and it appears plain old greed was the motivating factor.

  2. Elisabeth Kendall

    Yes, the Saudi PIF investment in Carnival is significant. However, the notion that “MBS has stepped in to rescue Carnival” seems a stretch.
    1. The Saudi PIF of less than half a billion is no game changer. The real “rescue” was the $6 billion raised the previous week.
    2. The idea that MBS “stepped in” as a favour to Trump who in turn wanted to do a favour to Carnival Chairman Mickey Arison is highly tenuous. It is far more likely that the Saudi PIF spotted that the Carnival share price had tanked by over 80% whilst at the same time the debt just injected gave it a sporting chance of recovery.
    But, in this recovery, the point you make about the age demographic of cruise-goers is key. Even after the lockdown eases and the appetite for cruising returns, the industry cannot risk gathering large numbers of an at-risk age group into an enclosed space for days on end. Long-term, the only “rescue” for the industry will be the development of a reliable vaccine or a swift treatment for Covid-19.
    (Also, re. ships as hospitals: Note that Arison is but one among many in the industry to raise this idea. The intention was not to use them for Covid-19 patients – as most horrified commentators assumed. The ships would house regular patients, thereby freeing space in shoreside hospitals for Covid-19 patients. Hospital ships are not a new idea & there is much in their layout and facilities to recommend them for this purpose.)

  3. Alastair Newton

    This is, in my view, an excellent analysis, not least because it does a good job of highlighting what is almost certainly a key ulterior motive which has encouraged MbS into this investment (ie his relationship with President Donald Trump which, as the article points out, is currently under some strain – with no clear indication that the cause of that strain, ie the oil price war, is about to be resolved).
    I would nevertheless add one point, ie Covid-19 has certainly highlighted the potential health risk on cruise ships but it is not as if this particular virus has started something new in this respect. This article from 2010(!) is illustrative: https://www.livescience.com/32852-are-cruise-ships-a-health-risk.html.

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