Carnival shares slump amid planned $500 million fire sale of stock

• The Carnival share price has fallen 2.5% to £16.53 since 28 June
• Carnival announced plans to sell off $500 million (£361 million) worth of shares
• The move aims to raise much-needed cash to stem shortfalls
• Other major cruise companies have seen their share prices fall
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Why is the Carnival share price falling?

Carnival PLC, the world's largest travel leisure and cruise company, has seen its share price slump this week after announcing to the Securities and Exchange Commission (SEC) its intention to sell $500 million worth of company stock.

The move comes amid another challenging year for the global cruise industry, with ships continuing to be moored in harbours around the world as a result of the Covid-19 pandemic. The extensive cash burn experienced by cruise companies has meant that Carnival spent up to $650 million a month keeping the company afloat with virtually zero revenues in 2020.

Although the planned sale would raise some much-needed cash for the beleaguered company, it is also clear that the proceeds from the sale would not be used for immediate operational costs. Rather, Carnival has said that it would use the proceeds to purchase UK-listed shares of the dual-listed company.

Will the sale of Carnival shares pay off?

Following the news of Carnival's plans, other major players in the cruise industry also suffered, as market sentiment began to turn on 28 June. Norwegian Cruise and Royal Caribbean also saw similar slumps, as fear rose that the industry was entering a new phase of crises. However, it is worth noting that the overall picture of Carnival is not necessarily negative.

The Carnival share price has mounted a substantial recovery from its pandemic-level low of £6.14, driven partly by a surge in bookings for 2021 and 2022. Meanwhile, it is important to remember that Carnival is not selling shares to simply keep the lights on.

Rather, Carnival's stock purchase plan explained that it will only sell the $500 million worth of shares if ‘ordinary shares of Carnival plc are trading in a United Kingdom market at a discount to shares of common stock of Carnival corporation’, the common stock here being the US-listed Carnival Corporation. Therefore, this move is intended by Carnival to address any future price disparities between the UK and US stocks, rather than a desperate bid to raise cash.

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