Rolls-royce has announced plans to raise 2bn in a rescue rights issue, as well as drawing in government support for a new debt package of up to 3bn, in an attempt to bolster a balance sheet badly hit by the pandemic.
Shareholders are being offered 10 shares at 32p each for every three they own, in what amounts to a 41 per cent discount based on the theoretical post-rights price. the shares closed on wednesday at 130p and were down 11 per cent in early trading on thursday.
Warren east, chief executive, said the fundraising would help rolls-royce navigate the current uncertain operating environment.
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, he said.
Rolls-royce also said the uk export finance agency had agreed in principle to guarantee a further 1bn loan, in addition to the 2bn granted in july. however this was still subject to agreement of terms with lenders and a successful completion of the rights issue, so there was no guarantee this would complete, the company said.
Rolls-royce also intended to raise at least 1bn through a bond offering, while banks had agreed to a new two-year term loan facility of another 1bn.
The uk group has been driven to the fundraising by the worst crisis to hit the aviation industry. the global collapse in air travel has grounded many of the large aircraft flying its big engines, severely affecting its power by the hour model where it is paid for the time its turbines are in the air. the long-haul segment is not expected to recover before 2024, according to many analysts, which will put further pressure on the groups cash flow.
The cash call is vital to restore the balance sheet, which will suffer a roughly 4bn cash outflow this year. rolls-royces net debt has soared, and is expected to rise from 993m last year to a forecast 3.5bn by the end of 2020. about 3.2bn of the companys debt falls due next year, putting it under pressure to refinance those borrowings.
Credit rating agencies have downgraded its debt to junk status, a severe impediment to striking new long-term contracts with airline customers.
The groups credibility now rides on whether investors take up the offer. the share issue has been fully underwritten, with bnp paribas, citigroup, goldman sachs, hsbc, jefferies and morgan stanley acting as joint global co-ordinators.
Crdit agricole cib, santander, smbc nikko and socit gnrale are acting as co-lead managers. goldman and greenhill are acting as financial advisers to the company. jefferies and morgan stanley are acting as joint sponsors.