Rolls-Royce, the manufacturer of jet engines which power both the Boeing 787 and Airbus A350 has seen its share price since the outbreak of the COVID-19 pandemic fall by over 80%. The company’s market value currently stands at approximately £2.0 billion.
Part of the problem lies not just with a drop in demand for new engines, but airlines pay Rolls-Royce based on hours flown. With its engines operating on long-haul flights and that sector of air travel being harder hit than the domestic market, Rolls-Royce is struggling further. Plans to shed 9,000 jobs have already been mooted, though turning to the U.K. government for a financial bailout has yet to be given any serious consideration. £2 billion will be raised from shareholders and commenting on the refinancing plan, Warren East, CEO of Rolls-Royce said: “This is a comprehensive package which will take any liquidity questions off the table through this crisis,” adding, “We wanted this package to provide sufficient headroom even through our worst case scenario.”
While a rights issue had previously been discussed, East was keen to point out that would not be considered an option until it could be shown its restructuring plan was working. On that basis, the £2.0 billion it is looking to raise from shareholders will be as a result of a ten for three discounted rights issue that has been underwritten at 32p per share, a 41% discount on what analysts estimated would be a theoretical ex-rights price of 54.6p.
According to Reuters news agency, shareholders will vote to approve the rights issue at a general meeting expected to be held on Oct. 27 and conditional upon its completion, additional debt options will open up. Rolls-Royce said it intended to begin a bond offering to raise at least 1 billion pounds, while UK Export Finance has indicated it was ready to support an extension of its 80% guarantee of Rolls-Royce’s existing £2.0 billion five-year term loan and would support a loan amount increase of up to £1.0 billion. Rolls-Royce also said it had commitments for a new two-year loan facility of £1.0 billion. (£1.00 = US$1.29 at time of publication.)
