Rolls-Royce Shares Fall 14% amid Plans to Raise $3B through Equity Issue

UTC by Tolu Ajiboye · 3 min read
Rolls-Royce Shares Fall 14% amid Plans to Raise $3B through Equity Issue
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After Rolls-Royce confirmed plans to raise £2.25 billion ($3.23 billion) through an equity issue, shares fell over 7%. RR is currently down 14%.

Shares of Rolls-Royce Holding PLC (LON: RR) plunged shortly after the British engineering company confirmed plans to raise over $3 billion through an equity issue. The recent decline marks the lowest the company has been since 2004.

Globally, shares of many companies fell as a result of the coronavirus pandemic. At the peak of the pandemic, people were asked to stay indoors, with many companies forced to shut down temporarily. As a result, these companies, including Rolls-Royce, recorded losses. 

Rolls-Royce Holding Shares Decline

As the pandemic eases, some of these affected companies have been rebounding from the losses. However, Rolls-Royce shares continue to fall. Before the stay-home period, airlines paid the aero-engine company based on the number of hours its engines fly. However, Rolls-Royce declined significantly as planes were grounded.

Rolls-Royce has lost over 78% in the past year and 75.94% in 2020. Also, shares of the engineering company have dropped 48.51% in the last three months. Furthermore, RR declined nearly 37% over the past month and 21.83% in the last five days. 

Over the weekend, Rolls-Royce released a statement in response to press speculations about its finance:

“We are evaluating the merits of raising equity of up to £2.5bn, through a variety of structures including a rights issue and potentially other forms of equity issuance. Our review also includes new debt issuance.”

In addition to recent losses, RR fell more than 7% earlier today and is currently down over 14%. The early losses occurred after the company confirmed plans of the £2.5 billion ($3.23 billion) funding.

According to a Financial Times report, the multinational engineering company is discussing with sovereign wealth funds to raise the funds. In the report, three sources confirmed that Rolls-Royce is planning to execute its plans next month. Also, the company is presently deliberating on a funding method, including a rights issue.

Rolls-Royce Aims to Recover Losses

As noted in the Financial Times report, Rolls-Royce is working on repairing its balance sheet damaged by the pandemic. In partnership with Goldman Sachs, the company plans to launch the equity raise in the first weeks of October.

Financial Times also revealed that Rolls-Royce and its bankers at Goldman Sachs are also in discussion with Singapore’s GIC.

“No final decisions have been taken as to whether or when to proceed with any of these options or as to the precise amount that may be raised.”

Furthermore, Rolls-Royce has revealed plans to sell some of its assets to raise a further £2 billion. Some of the assets up for sale include its Spanish aircraft engine manufacturing business ITP Aero. Also, Rolls-Royce has been unable to find buyers for its Bergen diesel engine business in Norway.

The Member of Parliament for Mid Derbyshire, Pauline Latham, commented on the recent happenings. Noting that Rolls-Royce is a significant business in the UK, she called on the government to participate in the company’s capital raising.

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