1st Oct 2020 08:27
(Alliance News) - Rolls-Royce Holdings PLC on Thursday outlined plans for a balance sheet boosting GBP2 billion rights issue, a GBP1 billion bond offering and the possibility of GBP2 billion more in loans.
The 10 for 3 rights issue will see Rolls-Royce issue 6.44 billion shares at 32 pence each. The jet engine maker said the issue effectively represents a 41% discount to its Wednesday closing price of 130p.
Rolls-Royce shares were 3.1% lower at 126.00p each in early trading on Thursday morning in London.
The rights issue needs the approval of shareholders at a general meeting on October 27.
Rolls-Royce last week noted what it called "continued media speculation" regarding the possibility of undertaking a fundraising, but at the time said no final decision had been taken.
Sky News reported on last week Friday that the Kuwait Investment Office was in talks with the Trent 1000 engine maker about its potential GBP2.5 billion fundraising.
The Covid-19 pandemic has sapped demand for air travel. The damage to carriers has rippled through to plane makers, such as Boeing Co and Airbus SE, and on to makers of components and providers of aftermarket services, such as Rolls-Royce.
What's more, the company will turn to the bond market, offering GBP1 billion of debt, currently expected to be completed once the rights issue is settled.
"Having considered a number of different scenarios, and in particular a "reasonable worst case" scenario, we have determined that it is in the best interests of shareholders to pursue the rights Issue and bond offering now," Rolls-Royce said.
The company explained the measures will "improve our liquidity headroom" and "reduce our level of balance sheet leverage".
The company also received commitments for a two-year loan facility of GBP1 billion. The loan is conditional on the rights issue getting over the line and the cancellation of a GBP1.9 billion liquidity arrangement.
"In addition, UK Export Finance has indicated that it would, in principle, support an extension of its 80% guarantee of our existing GBP2 billion five-year term loan to support a loan amount increase of up to GBP1 billion. This is subject to completion of the rights issue, agreement of terms with lenders and approval of those terms by UK Export Finance and HM Treasury, and there is therefore no guarantee that this increase will take place," Rolls-Royce.
Rolls-Royce said the cash-boosting measures will improve its "financial resilience" ahead of 2022, when it expects a return to "strong cash generation".
In a brief update on its trading, Rolls-Royce said not much has changed since late August, when it reported on its half year ended June 30.
"As expected, revenue and underlying operating profit for the first eight months of the year were materially below the prior year, significantly affected by the Covid-19 pandemic and related one-off charges taken in the first half of 2020. Consistent with the trends in the first half, our Civil Aerospace and ITP Aero businesses continued to see the largest impact from Covid-19," it said.
"Performance in our Defence business remained resilient; and our Power Systems business experienced disruption in some end markets. The group continued to experience free cash outflows in July and August, albeit at a reduced level compared to the first half of 2020 and modestly better than our expectations."
By Eric Cunha; [email protected]
Copyright 2020 Alliance News Limited. All Rights Reserved.
Related Shares:
Rolls-Royce