Yahoo Finance Rolls-Royce looks to boost battered finances
Rolls-Royce is considering selling off parts of its business and issuing more shares before the end of the year as it races to deal with a growing debt mountain following a global collapse in air travel.
The troubled engineer's shares nosedived more than 10pc after it warned that it is considering emergency options to raise cash, wiping £566m off the value of the business. The FTSE 100 stock has already more than halved since the pandemic struck.
Demand to build and maintain Rolls jet engines fell off a cliff as air travel collapsed because of Covid-19, with analysts predicting it will take years before operations return to normal.
Reports of a fundraising effort forced Rolls to issue a statement in which it confirmed it was in the early stages of reviewing possible options, but no decisions have yet been made.
Although no banks have been appointed to run sales or sell shares, the company has been consulting a wide range of advisers about how it can tackle its debt pile.
Rolls has already secured and drawn down a £2.5bn overdraft to strengthen its finances in the face of coronavirus. It has another £1.9bn of debt agreed, along with £300m from the Bank of England's Covid Corporate Finance Facility which offers emergency loans to the country's largest firms.
Rolls is burning through this debt and the fundraising is a recognition of the fact it will have to be repaid long before key markets recover.
One industry source said: “Disposals are the most likely way of doing this, followed by issuing shares. It’s unlikely anything will come before the autumn.”
Rolls has been particularly hard hit because 50pc of the company's £15bn annual revenues come from its airliner business, which is focused on engines for long-haul jets - a part of market which is expected to be the slowest to recover.
The company has launched a massive savings drive and is cutting 9,000 of its 52,000 staff worldwide.
One part of Rolls thought to be a likely sales target is Spanish jet engine subsidiary ITP Aero. Last summer the company ended talks about offloading a minority stake in the business - which was then valued at about £1.5bn - to Spain’s Indra Sistema.
Experts have speculated that the blue-chip engineer will have to launch a massive fundraising if it hopes to survive the downturn.
JP Morgan, which is particularly downbeat, reckons the company needs to secure at least £6bn on the markets to endure Covid-19.
The heavyweight broker has also suggested the Treasury - which holds a “golden share" dating back to before Rolls was privatised in 1987 - could be forced to step in because the company is so important to Britain's defence and industrial base.
It is understood |rolls is one of the firms being examined by ministers under a secretive rescue scheme known as Project Birch, which could ultimately see the treasury take stakes in ailing businesses.
The severity of the share price plunge is attributed to some brokers not expecting action to boost Rolls’s financial reserves until early next year.
Rolls shares were down 29.6p at 262.9p in late trading.
