Rolls-Royce set to tap investors for £2.5 bn as shares near 16-year low

ROLLS-ROYCE is on the cusp of launching an emergency fundraising to tap shareholders for between £2 billion and £2.5 billion.

City sources said the FTSE 100listed jet engine maker is close to securing the funds from investors, possibly through a rights issue and placing.

Goldman Sachs a nd Morgan Stanley are believed to be among the investment banks working on the fundraising deal for Rolls-Royce.

It had been thought Rolls-Royce may look to raise £1.5 billion from investors. But sources claimed the blue chip firm is now seeking an extra £500 million to £1 billion, possibly from sovereign wealth funds.

The move to launch such a large rescue fundraising comes as RollsRoyce shares – which closed last week at £1.80 – flirt with a 16-year l ow amid concerns about t he company’s financial position.

Investment bankers last month told The Mail on Sunday that t hey had heard rumours t he Government was ‘starting to get worried’, raising the possibility of state intervention.

Rolls-Royce – in which the Government has a ‘golden share’ that gives it the right to block a takeover – has been hit hard by the pandemic. In part that has been because the company operates a power-by-thehour model, where it sells engines at a loss and later receives payments according to how much they fly. This arrangement has left the company bleeding cash.

The firm is also particularly exposed to the collapse in long-haul travel because it makes engines for bigger planes such as Boeing’s 787 Dreamliner and Airbus’s A350.

Rolls- Royce’s debt has been downgraded to junk status and major long- term shareholders, such as American activist ValueAct Capital, have been selling out of the company.

In a note to clients several weeks ago, David Perry, an analyst at JP Morgan, said: ‘ An £8 billion hole will need much more than a £1.5 billion rights issue. We believe RollsRoyce needs to raise at l east £ 6 billion [ through equity raise sales and disposals] to put itself on a sound financial footing.’

Perry added that the company’s debt pile will be almost £19 billion by the end of the year. He believes that £1.5 billion may not be enough to save the firm.

The analyst suggested that Rolls-Royce needs to issue £6 billion of equity and this might not be possible by just relying on institutional investors. ‘We think there is a high chance of Government intervention,’ he added.

Aside from tapping stock market investors for fresh cash, RollsRoyce is also seeking to generate about £2 billion from selling divisions – including ITP Aero – over the next 18 months.

ITP Aero is Rolls-Royce’s Spanish engineering division that makes turbine blades for engines.

A spokesman for Rolls- Royce said: ‘We continue to review a range of funding options to further strengthen our balance sheet.

‘ These could include debt and equity, but no final decisions have been taken. We have already taken swift action to strengthen our liquidity with £ 6.1 billion at the end of the first half of the year and a further £2 billion term loan agreed in the second half.

‘We have also announced £1 billion of cost mitigation activity in 2020 and launched a reorganisation of our Civil Aerospace business to save £1.3 billion annually.’

Last month, the firm’ s woes were compounded by the announcement that finance chief Step he nD a in ti th was leaving the business for online delivery firm Ocado.

Daintith has said he will stay for a transition period.