Rolls-Royce’s share price slumps to 16-year low

Rolls-Royce’s share price slumped to a 16-year low yesterday (September 21) after the firm announced it was considering a £2.5m cash call.

Stocks dropped by over 10% at close of trading on the London Stock Exchange on Monday, to end the day at just 160.7p. The drop means the Derby manufacturer’s shares have lost 76% of their value this year – something which could prove a barrier to selling £2.5bn worth of new stock.

The decline in the share price yesterday came after Rolls-Royce said it was looking to raise the extra cash to help it through any second wave of the pandemic.

The firm said it is “evaluating the merits” of raising equity of up to £2.5bn, through a variety of structures including a rights issue and potentially other forms of equity issuance. The review also includes new debt issuance.

A statement added: “No final decisions have been taken as to whether or when to proceed with any of these options or as to the precise amount that may be raised.

“As we said on 27 August 2020, following rapid management actions to reduce costs and secure additional liquidity, we started the second half of 2020 with liquidity of £6.1bn (comprising £4.2bn cash at end June and a £1.9bn undrawn revolving credit facility).

“In addition, we finalised a £2bn undrawn term loan, partly backed by the UK Export Finance, in August. We have also launched a major restructuring of our Group, in particular our Civil Aerospace business, with forecast annualised pre-tax savings of over £1.3bn by the end of 2022. As previously announced, we have also already identified a number of potential disposals that are expected to generate proceeds of more than £2bn over the next 18 months, including ITP Aero.

“A further announcement will be made if and when appropriate.”