Rolls-Royce shares sink 10% after it taps shareholders for £2bn in fresh funding
British industrial titan Rolls-Royce shares closed down more than 10 per cent after it confirmed plans to raise £2bn from shareholders as it seeks to rebuild its battered balance sheet after Covid-19.
In total, the firm unveiled a restructuring package worth £5bn in total, with plans to raise an additional £1bn from the bond market and two new loans.
Shares slid throughout the day to close in London down 10.3 per cent to 116p.
Rolls-Royce’s market capitalisation has shrunk by more than 80 per cent in the last year.
The pandemic has hammered the FTSE blue chip’s finances as airlines pay the company according to how many hours its engines fly in wide-body jets.
Worries that a recovery in travel will take years have pushed its share price down by 80 per cent this year.
The aircraft engine maker said that the 10 for three heavily discounted rights issue was fully underwritten at 32p per share, a 41 per cent discount to the closing price of 130p per share on Wednesday.
Shareholders will vote on the rights issue on 27 October.
Rolls-Royce had been in talks with Singapore and Kuwait over the potential sale of a stake to their sovereign wealth funds, but pulled out last night.
In May, the company said it would cut 9,000 jobs as a result of the pandemic and its finances have been the subject of media speculation since.
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“The capital raise announced today improves our resilience to navigate the current uncertain operating environment,” said chief executive Warren East in a statement.
“By raising additional capital now, we will improve our liquidity headroom and reduce our level of balance sheet leverage, while supporting disciplined execution and investment to ensure we maximise value from our existing capabilities.”
‘Cap in hand’
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.
“This should all give Rolls Royce a lot more room for manoeuvre to help it navigate the Covid crisis.”
Rolls-Royce, a key supplier to the government on military programs, said that government body UK Export Finance had also indicated it was ready to support an extension of its 80 per cent guarantee of Rolls’ existing £2bn five-year term loan.
It would support a loan amount increase of up to £1bn.
That is on top of commitments for a new two-year loan facility of £1bn, the company said.