Rolls-Royce raising $6.5 bln to survive COVID cash crunch

The British government's UK Export Finance has indicated it was ready to support an extension of its 80% guarantee of Rolls' existing 2 billion pound five-year term loan.

Rolls-Royce plans to raise a total of 5 billion pounds ($6.5 billion), including 2 billion pounds from shareholders, to rebuild its balance sheet as the coronavirus travel crisis wreaks havoc on the British engine maker's cashflow. 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% 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.

Rolls said in a statement that despite a cash outflow of 4 billion pounds this year is expected to return to positive cash flow during the second half of next year and was targeting 750 million pounds of free cash flow 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 capitalization of just 2.5 billion pounds, Rolls said that a 10 for 3 heavily discounted rights issue was fully underwritten at 32 pence per share, a 41% 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 programs. The British government's UK Export Finance has indicated it was ready to support an extension of its 80% guarantee of Rolls' existing 2 billion pounds five-year term loan. It would support a loan amount increase of up to 1 billion pounds.

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

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