London: Rolls-Royce Holdings laid out plans to generate 5 billion pounds ($6.5 billion) in new financing, boosting the jet-engine maker's diminishing reserves amid a collapse in demand for the planes it powers. It plans to raise about 2 billion pounds in equity from a rights issue, and a further 3 billion pounds in bonds and loans.
The funding is aimed at seeing Rolls through to 2022, when it aims to resume strong cash generation. The company has been one of the biggest casualties in a sector hard hit by the coronavirus crisis, with its shares plunging more than 80 per cent this year through Wednesday. Long-distance travel has been sharply curtailed, hurting demand for the wide-body planes that use its turbines, while existing fleets remain largely grounded, wiping out vital maintenance revenue.
The 10 for three rights issue, which will come at a 41.4 per cent discount to Wednesday's closing price, has been fully underwritten, the company said, while a 1 billion pound bond offering will proceed in the near future.
Buying time
"The capital raise improves our resilience to navigate the current uncertain operating environment," CEO Warren East said, adding that the pandemic had led to a "sharp deterioration" in the financial performance of the group's civil aerospace business. Rolls-Royce said that as well as improving liquidity and bolstering the balance-sheet, the new funds will allow the group to pursue asset disposals from a stronger position as it repositions to focus more on sustainable power.
Rolls-Royce stock had touched a 17-year low Wednesday, reflecting investor concern about its future in a post-COVID-19 era when airlines may take years to rebuild fleets and travel seems likely to be focused on shorter trips using smaller planes - a market where the UK company does not compete.
Winning government backing
Jefferies International analyst Sandy Morris said in a note that investors have generally focused on worst-case outcomes for Rolls, but that the multi-element refinancing represents an "holistic package".
Contingent on completion of the equity offer, Rolls said it also has commitments for a two-year term loan of 1 billion pounds, and that UK Export Finance has indicated backing for an extension of its 80 per cent guarantee to support a 1 billion pound increase in an existing loan. Rolls-Royce last month said it intended to raise as much as 2.5 billion pounds through a rights issue or other forms of equity, and issue more debt. The company also reportedly looked at raising funds from Singapore's GIC and Kuwait Investment Office.
