Covid: Rolls-Royce announces plan to raise £3bn

Marco Green
October 1, 2020

Shareholders of the United Kingdom engine-maker opposed a plan to raise funds from Singapore's GIC and Kuwait Investment Office because it would dilute existing owners, the person added.

There has been speculation for weeks that Rolls-Royce will seek funding. "This is a temporary reprieve and I fear that we could see the company have to address its financial situation within six to 12 months all over again, particularly if air travel remains slammed into the ground as it has been since March 2020".

Conditional upon completion of the rights issue, additional debt options will open up said Rolls, a key supplier to the government on military programmes.

Unlike most of corporate Britain, the state has a share in Rolls-Royce, meaning Whitehall has a veto over some of its strategic decisions.

However, Rolls-Royce said an extension of a government loan was dependent on both UK Export Finance and HM Treasury approving the terms of the rights issue.

"We are undertaking decisive and transformative action to fundamentally restructure our operations, materially reduce our cost base and improve our financial position", chief executive Warren East said.

The government holds a "golden share" in Rolls-Royce which prevents the company - which is deemed to be of strategic interest to the United Kingdom - from coming under foreign control.

"The capital raise. improves our resilience to navigate the current uncertain operating environment".

"Once seen as a shining light for British business and for engineering worldwide, Rolls-Royce has had to stomach major problems with the Trent 1000 engines in recent years and Covid-19 just added to the pressure", said analysts at AJ Bell.

It makes money not from selling engines, but from the payments airlines make when those engines are flying.

The rights issue price is 75% below last night's close of 130p with shareholders asked to stump up for 10 new shares for three existing, with a theoretical ex-rights price of 54.6p.

"This restructuring, the largest in the Group's history, is meant to deliver a total annual pre-tax cash saving of at least £1.3bn by the end of 2022", Rolls-Royce said.

There is an element of government support here for what is one of the UK's most important exporters. The course of the virus is hard to predict, as is the future behaviour of air travellers even if it is defeated.

Rolls, whose engines power the Boeing 787 and Airbus 350, said in May it would cut 9,000 jobs as a result of the pandemic and its finances have been under intense scrutiny. Plans include a highly discounted share issue. Many aircraft in the existing fleet have been temporarily or permanently grounded, depriving Rolls-Royce of vital maintenance revenue it collects when they fly.

Other reports by Click Lancashire

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