Rolls-Royce seeks $2.6 billion in make-or-break share issue

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In this news, we discuss the Rolls-Royce seeks $2.6 billion in make-or-break share issue.

LONDON (Reuters) – Aircraft engine maker Rolls-Royce will ask shareholders on Tuesday for £ 2bn ($ 2.6bn) in a decisive attempt to survive the COVID-19 pandemic, which has stopped planes from flying and hammered his finances.

At stake is the future of a company that has been at the heart of manufacturing in Britain for more than 100 years, making engines that powered WWII bombers while still flying fighter jets and aircraft. the country’s nuclear submarines.

Investors are expected to back the rights issue, backing CEO Warren East’s plan to cut 9,000 jobs and shut down factories to accommodate lower demand from airline customers that fly Rolls engines on Boeings. 787 and Airbus 350.

The Institutional Shareholder Services and Glass Lewis shareholder advisory groups have both urged clients to support fundraising.

“We find the terms of the proposed toll issue to be reasonable,” Glass Lewis said in a note, while ISS said the rationale was “compelling.”

Investors can buy 10 new shares for every three they own at 32 pence each, a 41% reduction from the theoretical ex-rights price.

The company, which suffered a loss of £ 5.4bn in the first half of 2020, faces a cash crunch late next year when £ 3.2bn of debt is due to be repaid.

As a sign of Rolls’ strategic importance, the UK government has guaranteed a £ 1 billion loan in addition to the £ 2 billion it backed in July through its UK export finance arm.

Rolls account for 2% of all UK goods exported and are one of the country’s biggest consumers of research and development. It also buys from 2,300 small UK suppliers and, before the pandemic, supported up to 135,000 jobs in the UK.

But COVID-19 has wreaked havoc on the company’s finances as airlines only pay it when their planes fly, forcing it to seek out a £ 5 billion debt and equity program to survive months of expected turmoil.

Rolls’ market value has grown from over £ 20 billion in 2018 to £ 4.7 billion, putting it on a level playing field overall with online clothing retailer ASOS ASOS.L.

Analysts are optimistic about Rolls’ future if it gets the 50% plus one of the votes cast in Tuesday’s virtual meeting.

“They gave themselves enough time and space to make sure they got to the other side,” said Nick Cunningham, agency partner analyst.

Other debt options will also open up if shareholders back the fundraiser, including £ 2bn of bonds, after strong investor demand allowed it to double the amount it was targeting.

While the issue of rights will be very dilutive for shareholders, investor advisory groups believe it is preferable to a sale of stake to a sovereign fund, which would not have given them the opportunity to participate.

But current travel restrictions mean the outlook is bleak. According to the British industrial body ADS, there have been only three orders of wide-body aircraft that Rolls supplies in the third quarter.

Reporting by Sarah Young, additional reporting by Paul Sandle, editing by Mark Potter

Original © Thomson Reuters

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