Aircraft engine-maker Rolls Royce has announced plans to raise £3 billion to boost its finances after the global COVID-19 pandemic resulted in a sharp decline in civil aerospace.
The company is looking to tap shareholders for £2 billion through a rights issue, where investors buy new shares at a discounted price. According to the company, the rights issue is fully underwritten and is offering a 41% discount, with plans to issue ten new shares for every three existing shares.
The remaining £1 billion will come from new bond issuance. Furthermore, the group has agreed a new two-year loan facility worth £1 billion, conditional on completing the equity raise.
Rolls Royce said the measures are designed to improve its liquidity and reduce the debt on its balance sheet, adding that the earliest it projects to generate cash again is 2022.
Rolls-Royce has been hit hard by the impact of the coronavirus on its civil aviation business, and in last month, it reported a £5.4 billion loss for H1 2020. The company said it expects to have burned through £4 billion in cash by the end of 2020.
Demand for its engines has slumped, and Rolls Royce has already cut 9,000 jobs globally and closed a number of production sites.
The company is also planning to sell assets to raise at least £2 billion, including the Spanish engine maker ITP Aero.
Rolls Royce has predicted it would take until 2025 for aircraft engine orders to return to pre-COVID levels.
Rolls-Royce has previously taken swift action to deal with the sudden short-term impact of COVID-19. These include:
- Bolstering liquidity to £8.1 billion
- Cash savings of up to £1 billion have been implemented, which includes 10% salary deferral and 20% executive/senior management pay cuts
- The final payment to shareholders has been stopped, no interim payment
On the brighter side, the company seems to have weathered the most challenging period (H1 outflow £2.8 billion), £1 billion outflow expected in H2, and with expectations to return to positive cash flow in H2 2021.