Rolls-Royce Explores Fundraising Options Amid Downturn

(Bloomberg) -- Rolls-Royce Holdings Plc, the British jet-engine maker, is exploring options to raise funds that would help fortify the company against a downturn in the aerospace industry.

The London-based company is in the early stages of reviewing a range of options to strengthen its balance sheet, it said in a statement Friday, confirming a Bloomberg News report.

“No decisions have been made,” Rolls-Royce said. “Our current financial position and liquidity remain strong.”

Rolls-Royce is examining possibilities including selling shares and divesting assets, people familiar with the matter said, asking not to be identified because the information is private. Its ITP Aero unit is one potential disposal being studied, the people said.

The company could seek about 1.5 billion pounds ($1.9 billion) to 2 billion pounds if it decides to proceed with an equity offering, the people said. It hasn’t discussed precise figures and details could change, they said.

The U.K. company makes engines for wide-body aircraft, leaving it particularly exposed to fallout from the coronavirus pandemic that’s roiled global travel. While Rolls-Royce has no immediate liquidity issue, the long-haul aircraft market it serves isn’t expected to rebound until at least 2023, according to the International Air Transport Association.

Job Cuts

Shares of Rolls-Royce extended losses after the Bloomberg report, falling as much as 12%. They were down 10% as of 4:26 p.m. Friday in London, bringing the year’s drop to more than 60% and reducing the manufacturer’s market value to around 5.1 billion pounds.

About half of Rolls-Royce’s revenue comes from its civil aerospace business, according to data compiled by Bloomberg. The grim outlook for industry led S&P Global Ratings to downgrade Rolls-Royce’s credit rating to junk at the end of May, a move which can raise a company’s borrowing costs and lock out certain lenders.

The company had 7.4 billion pounds of available liquidity as of June, including 300 million pounds from the U.K.’s Covid Corporate Financing Facility and a 1.9 billion-pound revolving credit facility.

Still, its cash receipts for the first half are likely to be significantly lower than normal, as the engine flying hours that traditionally bring in maintenance revenue dropped because of the pandemic.

Covid Financings

Rolls-Royce would join discount carrier EasyJet Plc, publisher Informa Plc and online grocer Ocado Group Plc in seeking to sell new stock during the crisis. London-listed companies have raised $18.1 billion in follow-on equity offerings this year, according to data compiled by Bloomberg.

Companies are also ripping out costs to cut cash outflows. Rolls-Royce said last month it planned to eliminate 3,000 jobs in the U.K. this year, the first wave of cuts that could ultimately see the company emerge from the downturn a much smaller business.

They’re part of the 9,000 global reductions the company announced in May, when it became clear how the Covid-19 crisis is undermining demand for new aircraft.

In all, European aerospace manufacturers have set plans to eliminate some 33,000 jobs since the pandemic hit, based on a Bloomberg tally.

Manufacturing Health

U.K. manufacturers have raised the alarm about the health of industry. The Make UK trade body warned on Friday that more permanent jobs are at risk after a furlough plan ends in October.

JPMorgan Chase & Co. said in May that Rolls-Royce would need to “significantly reinforce” its balance sheet in the coming months. The company is likely to take action after announcing its first-half results and could consider options including material disposals or equity issuance, analysts led by David Perry wrote in a May 18 research report.

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