Share crisis looms for HMV

UK entertainment retail chain HMV is facing its lowest share value since its floatation in 2002.

Shares have fallen as sharply as 13.7 per cent over recent days, reaching a low of 22.75p. However, the price closed at 25.50p yesterday.

This means the company holds an estimated value of £108 million, down from 2002's £773 million.

The decline stems from recent revelations that credit insurers had withdrawn protection from some of HMV's suppliers, potentially affecting its ability to buy stock for its stores.

The Guardian reports that a number of insurers have cut the sums they are prepared to pay to suppliers in the event of HMV's demise by as much as 70 per cent. An undisclosed credit insurer is claimed to have "removed all cover on HMV Group from 12 January".

The firm this week told investors that "In light of recent comment on credit insurance cover, HMV Group wishes to clarify that, following the peak trading period, credit insurers are reviewing the level of cover they provide on the group.

"Whilst this has resulted in the reduction in the availability of credit insurance to certain of the company's suppliers, our business remains a core channel to market for them. We continue to maintain excellent relations with our suppliers and have had no difficulty in obtaining stock."

Although the loss of credit insurance played a major part in the recent downfall of fellow entertainment retailers Woolworths and Zaavi, a number HMV's music suppliers have pledged their support for their chain.

Chrysalis Records boss Peter Lassman told the Mail that "I can tell you it is business as usual, they enjoy our full support and we are not concerned about them going out of business. Companies go through problems some of the time and that does not mean they are bad companies."

Warner, Universal and Sony have also confirmed they will continue to provide stock to HMV.

It was a hard Christmas for the chain, with a sales decline of 13.6 per cent over the last five weeks of 2010 resulting in the revelation that it would close 60 stores (20 of which come from its bookstore subsidiary Waterstones) and cut costs by £10 million.

Just 10 per cent of HMV's sales are made online, fueling fears that the chain is overly-dependent on the declining appetite for entertainment products on the high street.

The firm is also burdened with a £151.6 million debt, and has drawn up an advisory team lead by accountants KPMG to brainstorm methods of avoiding a failure to meet lending agreements.