Rolls-Royce Holdings has called off talks to sell a substantial stake in the company to Asian and Middle Eastern sovereign investors as it prepares to unveil a £2bn cash call to help it survive the coronavirus crisis.
Sky News has learnt that the aircraft engine manufacturer abandoned negotiations with sovereign wealth funds in Kuwait and Singapore in the last few days amid opposition from existing shareholders.
City sources said that Rolls-Royce had been warned by institutional investors that they were unhappy about seeing their interests in the company diluted by a £500m placing to Kuwaiti and Singaporean sovereign wealth funds.
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Barring a last-minute hitch, the company, which has seen its balance sheet and share price hammered by the COVID-19 pandemic’s impact on global air travel, will announce a comprehensive plan to shore up its finances on Thursday morning.
A source close to Rolls-Royce’s lenders said the financing package was likely to include additional borrowing headroom as well as roughly £2bn of new equity.
Lenders including BNP Paribas and HSBC are understood to be involved in the cash call, while Goldman Sachs is also advising Rolls-Royce’s board, which is chaired by Sir Ian Davis.
Other elements, the details of which were unclear on Wednesday evening, are also understood to form part of Rolls-Royce’s board’s plan.
One insider said that the balance sheet strengthening had been engineered on the basis that the downturn in the aviation sector could get steeper in the coming months.
Image: Rolls-Royce announced plans in May to cut 9,000 jobs globally
Rolls-Royce has already announced plans to cut 9,000 jobs as a result of the pandemic, but has insisted that it has a liquidity cushion of as much as £8bn.
Analysts, however, have warned that it could burn through that cash within a year.
The government has been closely monitoring the company.
Rolls-Royce is a rarity in corporate Britain because of the state’s golden share, which gives Whitehall a veto over certain strategic decisions.
It remains possible that the government could inject funding directly into Rolls-Royce, although it was unclear on Wednesday whether that formed part of the immediate plan.
The talks with overseas sovereign funds had involved up to £500m of new shares being allotted to them.
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A Rolls-Royce spokesman declined to comment on the talks with sovereign investors.
In its most recent statement about its prospective cash call, it said: “We continue to review all funding options to enhance balance sheet resilience and strength.
“Amongst other options, we are evaluating the merits of raising equity of up to £2.5bn, through a variety of structures including a rights issue and potentially other forms of equity issuance.
“No final decisions have been taken as to whether or when to proceed with any of these options or as to the precise amount that may be raised.”
The scale of the share price slump at Rolls-Royce – its valuation has fallen by more than 80% in the last year – means that a £2bn cash call would involve the company raising the majority of its entire market capitalisation from the sale of new shares.
On Wednesday, shares in Rolls-Royce closed at just 130p, giving the company a paltry market capitalisation of £2.7bn, and raising the prospect that it could ultimately be demoted from London’s blue-chip FTSE-100 index.