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Rolls-Royce is in talks with sovereign wealth funds, including Singapore’s GIC, as part of a plan to raise around £ 2.5bn from investors next month, according to three people with direct knowledge of the matter.
The UK jet engine group is working with Goldman Sachs bankers on the planned capital increase as it appears to become the latest company to turn to stock market investors to repair a badly damaged balance sheet from the pandemic.
The group aims to launch the capital increase in the first weeks of October, two of these people said. As part of the talks, Rolls-Royce and its bankers are in talks with multiple sovereign wealth funds, including GIC, the island nation’s state fund where the company has significant operations.
However, discussions about increasing equity are ongoing and one person cautioned that the board is determined to push the decision until the last minute.
The news prompted Pauline Latham, who chairs Rolls-Royce’s informal parliamentary group, to ask the UK government to consider taking a stake in the manufacturer as part of raising capital.
“It is something they should not rule out,” the Conservative MP from Mid Derbyshire told the Financial Times. “Rolls-Royce is important to this country and we want it to be successful.”
The state already has protection against a possible hostile offer through a gold share, which prohibits the group from selling 25 percent or more of its net assets or the nuclear division without its consent.
On Friday, Rolls-Royce shares fell to a 16-year low at 180p, giving it a market value of £ 3.45bn. Its net debt is 4.4 billion pounds.
Rolls-Royce confirmed that it was reviewing all financing options. “We are assessing the merits of raising capital of up to £ 2.5 billion, through a variety of structures including a rights issue and potentially other forms of equity issuance. Our review also includes the issuance of new debt, ”the company said.
He said a final decision had not been made on whether or when to proceed with any of these options or the precise amount that could be raised.
GIC declined to comment.
In response to speculation last week that a capital increase was imminent, Rolls-Royce said it was reviewing a variety of financing options, which could come in the form of debt and equity, but that no decision had been made. final.
He also tried to reassure investors about his liquidity, which he said stood at 8.1 billion pounds.
The British group added that this year it had cut costs by a billion pounds and started reorganizing its civil aerospace business to find more savings.
Finally, the company said it had earmarked potential divestitures, including its Spanish aircraft engine manufacturing company ITP Aero, to raise another £ 2 billion.
Ms Latham said it was understandable that Rolls-Royce had to seek help from foreign sovereign wealth funds given the unprecedented scale of the crisis in global aviation that has left it with billions of pounds in losses.
“It is not ideal but they have to look for a secure future. They are
having to look wherever possible to achieve financial stability, “he said.
Rolls-Royce is in talks with private equity groups about an ITP deal. It is expected to inject some side businesses into ITP to scale it up and enhance its attractiveness to bidders. The group is also trying to sell its Bergen diesel engine business in Norway, but is struggling to find buyers.
After agreeing to a £ 2bn term loan in July, which was backed by UK Export Finance, the company told investors it had enough facilities to carry it through to 2021.
However, Rolls-Royce is facing a severe strain on its balance sheet due to cash flight from the crisis and the need to obtain new lines of credit to guarantee liquidity. It has a revolving credit line of £ 1.9bn that has yet to be used, but will need to be repaid in October next year if it is.
The company lost its investment grade rating earlier this year, which could hamper its ability to secure new orders and long-term maintenance contracts when the market finally begins to recover.
However, people close to the situation said that some investors had been pressuring the company to increase debt rather than turn to shareholders through a rights issue. Some investors hoped the group could postpone a cash call until it could show some results of its restructuring.
But with many in the industry recently suggesting that the expected recovery may be further than expected, Rolls-Royce can no longer delay, said a person close to the matter.
The company already faces a longer recovery road than other engine manufacturers, with its focus on engines for larger twin-aisle aircraft. The long-haul market segment is expected to rebound much later than short-haul and regional travel.
