Rolls scrambles to safety
EARLY on in the pandemic, the Chancellor Rishi Sunak was adamant that there would be no bailouts for firms which had other options. Virgin Atlantic and other supplicants seeking funds were told to exhaust all possibilities, including rich proprietors.
The wealthy backer for Britain’s topranked engineering and aerospace firms BAE and Rolls-Royce is HMG. It was inconceivable that any British government could allow Rolls-Royce to tip into insolvency.
But when the share price touched 104p on October 2, it looked like panic stations. The landing strip now seems a great deal clearer. Rolls-Royce was finally able to engage in selfhelp through a deeply discounted but underwritten rights issue to existing investors, and a new corporate bond, after the Government stepped in with loan guarantees.
Civilian aerospace is not going to repair itself while the pandemic persists, so immediate hopes of ramping up flying hours are out of the question. Rolls-Royce has maintained that the key to bolstering it through difficult times is to get behind new projects.
The unleashing of the PwC report on Britain’s next generation Tempest fighter, to be developed in conjunction with Sweden and Italy, is a big step forward for the aerospace sector. PwC estimates it could generate £25.3bn in value and create 20,000 jobs. Britain has already committed £2bn to getting Tempest done and that is a lifeline to both BAE and Rolls. The defence of Britain and the arms industry is one of the few certainties in an uncertain world.
The second prop in the Rolls-Royce armoury is the discovery in Whitehall of the Small Modular Reactor which became particularly relevant after Hitachi abandoned its nuclear commitment at Wylfa on Anglesey. The prospect of £2bn being put behind a programme – touted by Rolls for several years – has reassured investors.
There was market evidence of this with the disclosure of a doubling to £2bn of its fund-raising bond offer, helped by a juicy coupon of 4.6pc. Two years ago when Rolls had a decent credit rating, it paid just 0.875pc! It may also be comforting to know that if anything should go wrong, the Bank of England has the firepower to step in as a back stop buyer of corporate paper.
Down the hatch
WHAT a grim moment for the beerage. No sooner than the brewers managed to return to some kind of normality after lockdown, along come new restrictions.
The threat is particularly hard for Britain’s army of small and craft brewers, many of which were excluded from the direct support of the hospitality sector. Some five million pints were simply poured away.
Not that conditions are much better for the bigger quoted enterprises. Marston’s is letting go of 2,150 workers currently on furlough. The latest government guidance is scant reward for the extensive sanitation and social distancing measures taken by them and other pub chains.
Heineken is hit by a double whammy. It has spent £27m making its Star pubs Covid-compliant only to find that many will have to close their doors. It also is being fined £2m by the Pubs Code Adjudicator for ‘serious’ breaches of the rules. The measure was designed to protect landlords from rapacious brewers prevailing upon them to buy their own product rather than shop the market. Heineken’s defence is that the code is poorly drawn and no numerical targets have been provided, which means the adjudicator makes up the penalties as it goes along.
Maybe. But a job description for tenants written by a Heineken compliance officer includes a stipulation that the pubs code is interpreted for the commercial benefit of Heineken. That does not sound very neutral. Such breaches will not inspire sympathy for bigger brewers when they are most vulnerable.
Property IED
THE assault on Westfield owner Unibail-Rodamco by French telecoms billionaire Xavier Niel is a straw in the wind.
The shopping centre group is loaded up with £22bn of debt dating from when it bought the upmarket Australian mall owner in 2018.
As we know from UK shopping park owners Hammerson, Intu, land Securities et al, retail property values have been slashed by the pandemic.
The value of development properties will also be punished by further lockdowns.
As with past recessions, the ultimate bills for over-lending to property could end up with the banks. Scary.