Share price falls even further at troubled Rolls-Royce

Investors are continuing to be spooked by the troubles at Derby-based manufacturing giant Rolls-Royce after another day of plummeting share prices.

The firm, which this morning said it was abandoning talks with two overseas state funds and launching a £2bn rights issue while also taking on £3bn in debt, saw its stock fall by just under 11% to just under 116p at 1pm on Thursday afternoon (October 1).

Rolls-Royce’s shares are now at their lowest since the late Spring of 2003. The slump means the company has a market capitalisation of £2.24bn.

The jet engine maker said on Thursday morning that the 10-for-three rights issue was fully underwritten by its banks and shareholders have to buy newly issued shares or have their stake in the company diluted.

The new shares will be priced at 32p and must be approved by investors at a meeting later this month.

Rolls will also raise £1bn in a bond issue, take out a new two-year loan of £1bn, and a seek a further £1bn loan that would be 80% backed by UK Export Finance.

Rolls Royce said the steps will provide the group with improved financial resilience and a more appropriate balance sheet structure in order to weather macro-economic risks before it returns to strong cash generation, expected in 2022.

Warren East, chief executive, 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. By raising additional capital now, we will improve our liquidity headroom and reduce our level of balance sheet leverage, while supporting disciplined execution and investment to ensure we maximise value from our existing capabilities.

“The strength of our people, brand and global footprint, together with our innovation and technology will support us as we emerge from the COVID-19 pandemic and implement our longer-term strategy, playing a crucial role in the world’s transition towards a net-zero carbon economy.”

The aerospace manufacturer’s cash call cuts out widely reported plans for a £500m cash injection from sovereign wealth funds.

Talks with sovereign investors in Kuwait and Singapore about investment were met with opposition from shareholders.