Rolls-Royce has confirmed plans to raise £2bn from shareholders and billions more in debt as it battles to shore up its finances after a “sharp deterioration” caused by the coronavirus crisis.
The package includes “support in principle” from the government to extend an 80% guarantee for an existing £2bn five-year loan, which the struggling group wants to increase by up to £1bn.
Rolls-Royce has also agreed a separate two-year borrowing facility with lenders of £1bn and plans to tap bond markets for a further £1bn.
‘An eye-watering loss’ for Rolls-Royce
Shares opened 7% lower after Rolls-Royce announced the plans, which will see existing shareholders offered new stock at a sharp discount to its previous closing price.
The stock had already collapsed by 80% in the year to date before the rights issue was announced.
Rolls-Royce’s finances have been battered by a collapse in aviation caused by the coronavirus pandemic.
Airlines pay the company according to how many hours its engines fly. New engine deliveries have also slumped.
In May, the Derby-based group said it was cutting 9,000 jobs as a result of the pandemic, with around 6,000 of these expected to be in the UK.
Last month, it reported a record half-year loss of £5.4bn.
Rolls-Royce to axe 9,000 jobs
Announcing today’s cash call, chief executive Warren East said: “The sudden and material effect of the COVID-19 pandemic has had a significant impact on the commercial aviation industry.”
Mr East said there had been a “sharp deterioration in the financial performance” of its civil aerospace business and “to a lesser extent” its separate power systems business, which serves customers in marine and infrastructure sectors.
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“We are undertaking decisive and transformative action to fundamentally restructure our operations, materially reduce our cost base and improve our financial position,” Mr East said.
“The capital raise announced today improves our resilience to navigate the current uncertain operating environment.”
On Wednesday, Sky News revealed that Rolls-Royce had called off talks to sell a substantial stake in the company to Asian and Middle Eastern sovereign investors as it prepares to unveil the cash call to help it survive the coronavirus crisis, amid opposition from existing shareholders.