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- Rolls-Royce said Thursday that it plans to raise up to $ 6.5 billion to achieve financial stability, following a drop in demand for aircraft engines, restricted air travel and quarantine measures during the COVID-19 pandemic.
- The British aircraft engine maker seeks to raise more than $ 2.5 billion from its shareholders through a rights issue and an additional $ 3.8 billion through a bond and loan offering.
- Rolls Royce shares have lost more than 80% in 2020, making the company one of the worst performing stocks in the FTSE 100 index.
- Visit the Business Insider home page for more stories.
British engineering company Rolls-Royce has announced plans to raise up to $ 6.5 billion to stay afloat, following a drop in demand for new engines and restricted air travel during the COVID-19 pandemic.
The company seeks to raise more than $ 2.5 billion from its shareholders through a rights issue, in which existing investors can purchase new shares at a discounted price. UK Export Finance, the government’s trade finance body, could give Rolls-Royce another $ 1.2 billion if the rights issue meets certain criteria.
The extension of a government loan depends on UK Export Finance and HM Treasury approving the terms of the issue, Rolls-Royce said, adding that “therefore there is no guarantee that this increase will take place.”
Rolls-Royce also plans to raise more than $ 3.8 billion through a bond offering and other loans. This funding is expected to support the jet engine maker through 2022.
“The sudden and material effect of the COVID-19 pandemic has had 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 systems business. of energy “. Warren East, Rolls-Royce chief executive, said in a statement Thursday.
In a conference call, East said it is probably “the most difficult period the world aviation industry has ever faced in peacetime,” adding that “unprecedented times call for unprecedented action.”
Rolls Royce shares have lost more than 80% so far this year, knocking £ 10bn off the company’s market value, making them the worst performing stocks on the FTSE 100 index in so far this year.
The FTSE itself has fallen 23% so far this year. Rolls Royce shares are trading at their lowest level since mid-2003 and are now worth about a tenth of what they were at their peak in early 2014.
The Rolls Royce 5-year bond, which matures in April 2026, currently offers a current yield of around 3.11%, compared to 0.04% for five-year UK government bonds.
Rolls-Royce cut 9,000 jobs from its staff of 52,000 in May and is one of the UK companies hardest hit by the pandemic. The drop in air travel, flight restrictions and quarantine measures have caused the airline industry to run into major financial problems.
