Coronavirus: Rolls-Royce launches £5bn plan to repair battered finances

1 October 2020, 08:12 | Updated: 1 October 2020, 17:06

Rolls-Royce has confirmed plans to raise £2bn from shareholders as it battles to shore up its finances after a "sharp deterioration" caused by the coronavirus crisis.

The package includes "support in principle" from the government to extend an 80% guarantee for an existing £2bn five-year loan, which the struggling group wants to increase by up to £1bn.

Rolls-Royce has also agreed a separate two-year borrowing facility with lenders of £1bn and plans to tap bond markets for a further £1bn.

Shares fell 10% after Rolls-Royce announced the plans, which will see existing shareholders offered new stock at a sharp discount to its previous closing price.

The stock had already collapsed by 80% in the year to date before the rights issue was announced.

Rolls-Royce's finances have been battered by a collapse in aviation caused by the coronavirus pandemic.

Airlines pay the company according to how many hours its engines fly. New engine deliveries have also slumped.

In May, the Derby-based group said it was cutting 9,000 jobs as a result of the pandemic, with around 6,000 of these expected to be in the UK.

Last month, it reported a record half-year loss of £5.4bn.

Rolls-Royce employs 47,000 people including 21,000 in the UK. That is down from 52,000 globally and 24,000 in the UK earlier in the year, before the programme of job cuts started.

Announcing Thursday's cash call, chief executive Warren East said: "The sudden and material effect of the COVID-19 pandemic has had a significant impact on the commercial aviation industry."

Mr East said there had been a "sharp deterioration in the financial performance" of its civil aerospace business and "to a lesser extent" its separate power systems business, which serves customers in marine and infrastructure sectors.

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

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

On Wednesday, Sky News revealed that Rolls-Royce had called off talks to sell a substantial stake in the company to Asian and Middle Eastern sovereign investors as it prepared to unveil the cash call to help it survive the coronavirus crisis, amid opposition from existing shareholders.