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Rolls shares plunge on plans for £2bn investor cash call

The engine maker announced the rights issue alongside a bond sale to raise at least a further £1 billion and another £2 billion in loan support.

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Rolls-Royce plans to bolster its balance sheet in the face of the coronavirus crisis (Rui Vieira/PA)

Rolls-Royce plans to bolster its balance sheet in the face of the coronavirus crisis (Rui Vieira/PA)

Rolls-Royce plans to bolster its balance sheet in the face of the coronavirus crisis (Rui Vieira/PA)

Rolls-Royce has seen shares tumble to 17-year lows after unveiling a £2 billion investor cash call as part of a mammoth package to bolster its balance sheet in the face of the coronavirus crisis.

The engine maker announced the rights issue alongside a bond sale to raise at least a further £1 billion, as well as another £2 billion in loan support.

Derby-based Rolls said the fundraising would help it weather wider economic risks from the pandemic, which has hammered the aerospace industry.

Shares dropped 9%, taking the under-pressure stock down to its lowest level since 2003 following recent heavy falls.

The plans comes on top of a major restructuring announced by Rolls in May that will see it axe at least 9,000 jobs globally in response to the crisis – 3,000 of which will be in the UK.

We are undertaking decisive and transformative action to fundamentally restructure our operations, materially reduce our cost base and improve our financial position Warren East, Rolls-Royce

Around 4,800 roles had already gone by the end of August and 5,000 or more will go in total by January, it said.

Last month, the company slid to a £5.4 billion half-year loss as it was battered by the downturn in air travel.

In a brief update on trading on Thursday, it said revenues and underlying earnings are “materially” lower for the first eight months of the year.

It is not expecting to return to strong cash generation until 2022.

On the fundraising move, the group said: “Having considered a number of different scenarios, and in particular a ‘reasonable worst case’ scenario, we have determined that it is in the best interests of shareholders.”

Rolls warned in August that a worst case scenario, including a second wave of Covid-19, would be likely to force it to raise extra cash and confirmed earlier this month it was considering a rights issue among other options to boost its finances.

It is understood Rolls ditched talks for a £500 million fundraising with sovereign wealth funds in Kuwait and Singapore due to unease among institutional shareholders that it would dilute their holdings in the firm.

Warren East, chief executive of Rolls, said: “The sudden and material effect of the Covid-19 pandemic has had a significant impact on the commercial aviation industry, resulting in a sharp deterioration in the financial performance of our civil aerospace business and, to a lesser extent, our power systems business.

“We are undertaking decisive and transformative action to fundamentally restructure our operations, materially reduce our cost base and improve our financial position.

“The capital raise announced today improves our resilience to navigate the current uncertain operating environment.”

Rolls said the rights issue was fully underwritten.

As well as the rights issue and bond sale, it said it had agreed a new £1 billion lending deal and a potential £1 billion increase to a loan from UK Export Finance.

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said Rolls was in a “bleak position given the collapse in international air travel”.

But she added the fundraising “should all give Rolls-Royce a lot more room for manoeuvre to help it navigate the Covid crisis”.

PA