Aviation manufacturing giant Rolls-Royce has today confirmed plans to raise up to £3bn from shareholders and government, as the company looks to recover the impact of the coronavirus crisis.
£2bn of the funding package includes cash raised from current shareholders through a five-year loan. However, the company wants to increase this by up to £1bn.
As a result of today’s announcement, shares opened 7% lower, which will see current shareholders offered new stock at discounted price.
The stock had already collapsed by 80% in the year to date before today’s announcement – the latest struggles faced by the firm. In August, Rolls-Royce reported a record half-year loss of £5.4bn. The firm has already made thousands of job cuts due to the impact of COVID-19 – with more potentially on the horizon.
The group’s half-year loss of £5.4bn for the first six months of 2020 follows losses of £791m a year earlier.
In total, 6,000 job losses will come from the firm’s sites across the UK.
Rolls-Royce Chief Executive Warren East said: “The sudden and material effect of the COVID-19 pandemic has had a significant impact on the commercial aviation industry. We are undertaking decisive and transformative action to fundamentally restructure our operations, materially reduce our cost base and improve our financial position. The capital raise announced today improves our resilience to navigate the current uncertain operating environment.”
Rolls Royce goes cap in hand to shareholders to navigate the COVID-19 crisis
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown
Rolls Royce reckons going cap in hand to shareholders to raise £2bn is the least worst option, to help it deal with the crushing impact the pandemic has inflicted on its core business.
The aircraft manufacturer is in a bleak position given the collapse in international air travel. There is little end in sight for the falling demand for new planes and it’s already shed assets and announced mass job losses.
It had considered getting a cash injection from sovereign wealth funds in Singapore and Kuwait, but withdrew from those talks. It will instead raise another £1bn through the corporate bond market.
The 10 for 3 rights issue, should bolster liquidity and reduce balance sheet leverage and will need to be approved by shareholders at a general meeting on October 27.
Rolls Royce is also hoping to gain breathing space by arranging a new two-year loan facility of £1bn, conditional on the rights issue. It also has an agreement in principle from UK export finance to potentially increase the company’s existing £2bn five-year loan.
This should all give Rolls Royce a lot more room for manoeuvre to help it navigate the COVID-19 crisis. While civil aerospace has been a huge drain on the company, its defence and power systems business has already proved more resilient, the firm will be pivoting future investment into those operations as part of the restructuring programme.