Rolls-Royce comes up with a plan to stabilize its balance sheet with approximately £5 billion. The British engine maker expects to raise £2 billion from the rights issues and £3 billion government-backed debt.
On October 1, 2020, the British engine maker announced that shareholders would be offered 10 shares (£0,32 per each) for every three they already own. The company expects that the new shares will raise the financial capital by £2 billion from shareholders.
Warren East, the Chief Executive of Rolls-Royce, said that the fundraising could help the engine maker to navigate the current uncertain operating environment. By raising additional capital, the company seeks to improve its liquidity and reduce its level of balance sheet leverage.
Rolls-Royce also expects to secure a further £1 billion government-backed loan from the UK Export Finance agency in addition to the existing £2 billion five-year term loan. The loan was taken by Rolls-Royce earlier in July 2020, after groundings of majority of air carriers’ fleets had hit the engine sales and maintenance revenue.
The British government allegedly stated that it was ready to support an extension of its 80% guarantee for pre-existing Rolls-Royce’s loan. However, it is still a question for speculations, because the decision remains dependent on the agreement of terms with lenders and a successful completion of the rights issue.