British engineering titan Rolls-Royce has unveiled plans to raise £5billion in emergency funds as it scrambles for survival.
The aircraft engine maker intends to go cap in hand to shareholders to help shore up its finances which have been devastated by the Covid-19 pandemic.
If approved by the Treasury, the £2billion rights issue could unlock another £1billion loan from the Government’s UK trade finance body, UK Export Finance.
Cash strapped: Rolls-Royce intends to go cap in hand to shareholders to help shore up its finances which have been devastated by the Covid-19 pandemic
Rolls also plans to borrow another £1billion by issuing new bonds to investors and said it has secured a £1billion loan on top of this.
The sheer scale of the fundraising underlines the desperate plight of the world-renowned business, which has become one of the biggest corporate casualties of the coronavirus pandemic.
Shares fell another 10.2 per cent, or 13.2p, to a 17-year low of 116.8p – taking losses so far this year to 83 per cent. ]
Two years ago shares were worth more than £10 each. Rolls-Royce is now valued at just £2.2billion – less than half the £5billion market cap of discount retailer B&M.
Rolls has already announced it intends to lay off 9,000 staff to slash costs and sell off parts of the business to raise £2billion.
Chief executive Warren East said the plans to raise extra cash ‘improves our resilience to navigate the current uncertain operating environment’. The 58-year-old added: ‘The sudden and material effect of the Covid-19 pandemic has a significant impact on the commercial aviation industry, resulting in a sharp deterioration in the financial performance of our civil aerospace business and, to a lesser extent, our power systems business.’
Rolls-Royce designs, manufactures and services engines and turbines for the defence, marine and oil and gas industries.
Rolls Royce Chief exec Warren East said the plans to raise extra cash ‘improves our resilience to navigate the current uncertain operating environment’
But the company is particularly reliant on the civil aerospace business which accounts for just over half of its revenues.
The engineer makes money not from selling engines, but on payments airlines make when its engines are flying.
This ‘power-by-hour’ model typically generates around £4billion a year for the firm. Flying hours have roughly halved since the pandemic started, with planes grounded around the world.
Last month, Rolls-Royce slid to a £5.4billion half-year loss as the company was battered by the downturn in air travel.
Russ Mould, investment director at stockbroker AJ Bell, said: ‘Once seen as a shining light of British industry, Rolls been laid low by a combination of events which range from technical problems with its engines to a global pandemic which has hammered global demand for air travel and aircraft.
‘This has left the company looking for cash to try to see it through the downturn to make sure it can come out the other side so it can capitalise on the eventual upturn in global travel.’
Experts said the coronavirus pandemic came at the worst time for Rolls-Royce, which has already spent billions to resolve technical problems with some of its aircraft engines.
The firm has been exploring a range of options to ensure it emerges from the crisis, including raising £500million by selling a stake in the company to sovereign wealth funds in Singapore and Kuwait.
But it is understood Rolls ditched talks due to unease among institutional shareholders that it would dilute their holdings in the firm.
The company has instead turned to the Government for more help, having already borrowed £2billion in state-backed loans.
Yesterday it said the extension of another £1billion loan depended on the Treasury and UK Export Finance approving the £2billion fundraising with existing shareholders.
The Government holds a ‘golden share’ in Rolls which prevents the company from coming under foreign control as it is deemed to be of strategic interest to the UK.