Rolls-Royce to raise billions to revive its finances damaged by coronavirus pandemic

• Rolls-Royce said on Thursday it plans to raise up to $6.5 billion to achieve financial stability, following a drop in demand for aircraft engines, restricted air travel and quarantine measures during the COVID-19 pandemic.
• The British plane engine maker is seeking to raise over $2.5 billion from its shareholders through a rights issue, and an additional $3.8 billion through a bond offering and loans.
• Rolls Royce shares have lost more than 80% so in 2020, making the company one of the worst performing stocks in the FTSE 100 index.

British engineering company Rolls-Royce has announced plans to raise up to $6.5 billion to keep afloat, after a drop in demand for new engines and restricted air travel during the COVID-19 pandemic.

The company is seeking to raise over $2.5 billion from its shareholders through a rights issue, in which existing investors can buy new shares at a discounted price. UK Export Finance, the government's trade finance body, could give Rolls-Royce a further $1.2 billion if the rights issue meets certain criteria.

The extension of a government loan depends on UK Export Finance and HM Treasury approving the terms of the issue, Rolls-Royce said, adding "there is therefore no guarantee that this increase will take place."

Rolls-Royce is also planning to raise over $3.8 billion through a bond offering and other loans. This funding is expected to support the jet engine maker through to 2022.

"The sudden and material effect of the COVID-19 pandemic has had a significant impact on the commercial aviation industry, resulting in a sharp deterioration in the financial performance of our civil aerospace business and, to a lesser extent, our power systems business," Rolls-Royce's CEO Warren East said in a statement on Thursday.

In a conference call, East said it's most likely "the most difficult period the global aviation sector has faced in peace time," adding that "unprecedented times call for unprecedented action."

Shares in Rolls Royce have lost more than 80% so far this year, which has wiped £10 billion off the company's market value, making them the worst performing stock in the FTSE 100 index so far this year.

The FTSE itself has fallen by 23% so far this year. Rolls Royce shares are trading at their lowest level since mid-2003 and are now worth roughly a tenth of what they were at their peak in early 2014.

Rolls Royce's 5-year bond, which matures in April 2026, currently offers a running yield of around 3.11%, compared with 0.04% on five-year UK government bonds.

Rolls-Royce cut 9,000 jobs out of its 52,000 workforce in May and is one of the UK companies that has been worst affected by the pandemic. The fall in air travel, flight restrictions and quarantine measures have resulted in the airline industry struggling significantly with finances.