Investors give Rolls-Royce the green light for $2.6bn equity sale
Engine maker can access a further £3bn through a bond sale and a £1bn term loan
London — Rolls-Royce Holdings shareholders backed a £2bn equity raise, a key step towards shoring up the British engine maker’s finances to outlast the Covid-19 pandemic.
Investors voted 99.5% in favour of the rights issue, according to a statement on Tuesday. Due to their support Rolls-Royce can access a further £3bn of funds, through a bond sale and a £1bn term loan, both of which are conditional on the rights issue passing.
Rolls-Royce’s engine business has been dealt a heavy blow by the coronavirus, with both unit sales and maintenance revenue hurt by a mass grounding of widebody aircraft. The company announced a £5bn refinancing plan at the start of October, funded through a combination of debt issuance, a rights offer and loans, and now has no pressing need to extend borrowings guaranteed by the UK government.
Rolls-Royce shares slipped 2.3% to 221.00p as of 1.27pm in London, down more than two-thirds in 2020.
The package is aimed at seeing Rolls-Royce through to 2022, when the company expects to resume sufficient cash generation alongside a gradual recovery in demand for air travel. CEO Warren East has also said the company could sell assets as it repositions for the future.
“We didn’t want to put the business and our shareholders’ interests at risk by gambling on the situation next year so that’s why we chose to go with this package now,” the CEO said at an investor meeting.
Even with funding secured, Rolls-Royce still faces an uphill road to recovery. The twin-aisle aircraft the company supplies are predicted to take until at least 2025 to recover to pre-pandemic levels and the group has announced plans to cut 9,000 jobs.
Rolls-Royce recently updated civil aerospace staff on the restructuring, a company spokesperson said on Tuesday. Plans include the temporary shuttering of factories, reducing working hours and cutting benefits, according to the Financial Times.
The company is taking steps to shrink its sprawling global footprint. According to a recent investor presentation, Rolls plans to consolidate widebody assembly and testing as well as the machining of turbine blades at its Derby site, while focusing fan blade production in Singapore and manufacturing of components in Derby and Germany.
The British engine maker is paying the price for a strategy decided before the crisis, which was to only make engines for larger twin-aisle aircraft — which were then hit hardest by travel restrictions to contain the virus.
East has said that he does not see any opportunities for new engine programmes this decade, though Rolls-Royce has expressed interest in providing for a new, midrange jetliner if Boeing decides to move forward with the concept, according to people familiar with the matter.
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