Rolls-Royce raising £5b, ends talks with GIC and Kuwait fund

[LONDON] Rolls-Royce plans to raise a total of £5 billion (S$8.80 billion), including £2 billion from shareholders, to rebuild its balance sheet as the coronavirus travel crisis wreaks havoc on the British engine maker's cashflow.

This came after the company called off talks with sovereign wealth funds in Kuwait and Singapore following opposition from existing shareholders, Sky News first reported.

The shareholders had opposed the plan to bring in GIC and the Kuwait Investment Office as co-investors because it would dilute existing owners, Bloomberg said, citing a person familiar with the matter.

Airlines pay Rolls based on how many hours its engines fly in larger jets and worries over the slump in long-haul travel have knocked 80 per cent off the value of its shares this year.

Rolls, whose engines power the Boeing 787 and Airbus 350, said in May it would cut 9,000 jobs as a result of the pandemic and its finances have been under intense scrutiny.

"The capital raise announced today improves our resilience to navigate the current uncertain operating environment," chief executive Warren East said on Thursday.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

Rolls said in a statement that despite a cash outflow of £4 billion this year, it expected to return to positive cashflow during the second half of next year and was targeting £750 million of free cashflow in 2022.

It said that this was dependent on long-haul travel recovering. As a second wave of the coronavirus has surged across Europe, airlines have said that it will be 2024 before people are flying as much as they did in 2019.

With a market capitalisation of just £2.5 billion, Rolls said that a 10 for 3 heavily discounted rights issue was fully underwritten at 32 pence per share, a 41 per cent discount to the closing price of 130 pence per share on Wednesday.

The rights issue is subject to approval by shareholders at a general meeting expected to be held on Oct 27.

Conditional upon completion of the rights issue, additional debt options will open up said Rolls, a key supplier to the government on military programmes.

The British government's UK Export Finance has indicated it was ready to support an extension of its 80 per cent guarantee of Rolls' existing £2 billion five-year term loan. It would support a loan amount increase of up to £1 billion.

Rolls, which also said it had commitments for a new two-year loan facility of £1 billion, made no reference to who was backing the rights following media reports that Middle Eastern sovereign wealth funds were interested in doing so.

REUTERS, BLOOMBERG