Rolls-Royce weighs right issue to stay afloat

By Rahul Vaimal, Associate Editor
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Rolls Royce
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British multinational engineering company, Rolls-Royce is contemplating a share issue to raise up to $1.9 billion to compensate for the fall in income as a slower recovery in demand for air travel is threatening the aviation industry. 

The engineering company is anticipated to pursue a rights issue with new shares offered to its existing shareholders at a discount to the market price.

The organization whose share prices have dropped close to 60 percent since March, is consulting with BNP Paribas, Morgan Stanley and Jefferies about the share sale, which could take place in September.

Rolls-Royce told the media that it was still evaluating options to strengthen its balance sheet but no decisions had been taken. It said that “Our current financial position and liquidity remain strong.”

The COVID-19 effect

Rolls-Royce, which supplies engines for the Boeing 787 and Airbus 350, is estimated to utilize $3.89 billion in the first half of the year as the hours operated by its vendors have substantially decreased due to the COVID-19 pandemic. The company whose revenues are correlated to the use of its engines will have a further $1.30 billion outflow in the second half of 2020.

Rolls-Royce has also reserved its Spanish unit ITP Aero for sale to raise funds.

Aviation and travel companies around the world are expected to explore equity capital markets to improve their balance sheets in the coming months. Increased borrowing costs have made share issue more favorable.