LONDON: British jet-engine maker Rolls-Royce Holdings 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 yesterday, 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, sources familiar with the matter said. Its ITP Aero unit is one potential disposal being studied.
The company could seek about £1.5 billion ($1.9bn) to £2bn if it decides to proceed with an equity offering. It hasn’t discussed precise figures and details could change, sources said.
The UK 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.
Shares of Rolls-Royce extended losses after the Bloomberg report, falling as much as 12 per cent. They were down 10pc yesterday in London, bringing the year’s drop to more than 60pc and reducing the manufacturer’s market value to around £5.1bn.
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 £7.4bn of available liquidity as of June, including £300 million from the UK’s Covid Corporate Financing Facility and a £1.9bn 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.
Rolls-Royce would join discount carrier EasyJet, publisher Informa and online grocer Ocado Group in seeking to sell new stock during the crisis.