Rolls-Royce comes up with a plan to stabilize its balance sheet with approximately $2.6 billion. In order to mitigate the COVID-19 effect on business, the company will offer its shareholders a make-or-break deal by placing new shares.
Rolls-Royce announced that shareholders will be offered 10 new shares ($0.42 per each) for every three they already own. The company expects the new shares to raise Rolls-Royce‘s financial capital by $2.6 billion. Earlier in October 2020, Rolls-Royce announced that its new shares would be offered for shareholders with a 41% discount.
While airline customers worldwide have grounded a majority of Boeing 787 and Airbus A350 jets equipped with Rolls-Royce engines, the manufacturer expects its investors to back the rights issue that should support the company’s plan to cut up to 9,000 jobs as well as close some facilities in order to adapt changes in production demand.
According to the financial report of the first half of 2020, Rolls-Royce made more than $7 billion loss and this could lead the company to face a shortage of cash at the end 2021, when the manufacturer would have to fulfill its financial liabilities and repay a $4.1 billion worth debt.
In order to raise the company’s fund, as an alternative option for new shares placement, the shareholders could also sell their rights to someone in return for cash. This way the shareholders would not need to sell their existing shares. However, the exact amount of cash a shareholder would receive for their rights would depend on what the purchaser would be ready to pay.
Rolls-Royce has attempted to raise funds once by issuing new debt, while the rights issue allowed the company to unlock the government-backed financing. In addition to a state-guaranteed $2.6 billion loan for five-year team, which the company received in July 2020, the company remains expecting to secure a further $1.3 billion loan backed from the UK Export Finance agency.