Thomas Cook in fight with hedge funds over £40m bet on share dive

HEDGE funds stalking Thomas Cook have bet nearly £40million on a fall in the struggling holiday firm’s share price.

Some of the funds have also bought up swathes of the tour operator’s debt which would put them in a powerful position if its financial position worsens.

Investors have seen the value of their shares drop by nearly 90 per cent to 13p in the last year.

But, according to data prepared for The Mail on Sunday, nearly a fifth of the travel group’s shares are out on loan making the venerable British company the second most shorted on the London Stock Exchange.

A host of hedge funds have snapped up more so-called ‘short’ contracts in recent weeks.

Short-sellers borrow shares from investors under contract and aim to return them when the price falls, pocketing the difference in value. If the share price rises, they lose out.

Ominously for Thomas Cook, among its stalkers is Whitebox Advisors, one of a handful of investors that bet against the US subprime mortgage market – dubbed The Big Short and made famous in a book by Michael Lewis and a subsequent Hollywood film – in the run-up to the financial crisis.

Official Financial Conduct Authority statistics show that seven hedge funds are shorting 10 per cent of Thomas Cook’s shares, which is triple the amount held in major positions three months ago.

Figures from IHS Markit – which, unlike the FCA, also tracks short positions valued at less than 0.5 per cent – put the total at around 18 per cent. Whitebox and Londonbased TT International, which are Thomas Cook’s two biggest shorters, are among hedge funds that also hold far larger investments in the firm’s debt.

Debtors can take control as part of a financial restructuring or end up becoming shareholders in a debtfor-equity swap. The debt positions suggest they believe Thomas Cook has a future even if its financial health deteriorates in the short term. Thomas Cook backers say the short-sellers are misguided.

The firm, which last week launched an advertising campaign with Love Island star Samira Mighty as it seeks to persuade cautious customers to travel abroad, is in talks to sell both its airline and its larger tour operating business. That raises the prospect of the 178year-old firm being de-listed from the stock exchange.

In a recent equivocal note, reflecting the complex situation Thomas Cook has found itself in, Barclays analysts suggested the value of the company’s shares could be worth as much as 33p or as little as zero.

The report illustrates the risks being taken by both the hedge funds and the travel firm’s shareholders, which include City giants Invesco, Jupiter and BlackRock.

According to Barclays, the best case scenario for shareholders would be a sale of its airline for up to £1 billion.

It emerged earlier this month that Chinese investment giant Fosun, which is already Thomas Cook’s largest shareholder, wanted to buy the division.

However, if no airline or tour operator sale is agreed and Thomas Cook subsequently defaults on its debts, Barclays says the shares would be worthless.

The short position of Whitebox Advisors first emerged in March. On May 20, FCA figures show the firm increased its short by 0.88 percentage points to 3.22 per cent.

TT International also added to its short position on May 20 – taking it to 2.02 per cent. It increased it again in recent days to 2.6 per cent.

Thomas Cook declined to comment.