LONDON – Rolls-Royce is planning a share issue to raise up to $1.9 billion to pug a capital shortfall as a slow recovery in demand for air travel threatens the aviation industry, four sources told Reuters.
The British aerospace engineer is expected to pursue a rights issue with new shares offered to existing investors at a discount to the market price, they said.
The Derby-based business, whose share have tanked nearly %60 since early March, is in talks with BNP Paribas, Morgan Stanley and Jefferies about the share sale, which could take place in September, two of the sources said.
Rolls-Royce told Reuters it was still reviewing options to strengthen its balance sheet but no decision had been taken. ‘our current financial position and liquidity remain strong’, a spokesman said.
Jefferies, BNP Paribas and Morgan Stanley declined to comment.
Royals-Royce, which makes engines for the Boeing 787 and Airbus 350, said it would burn through 3 billion pounds in the first half of the year as hours flown by its engines halved due to the COVID-19 pandemic.
The company, most of whose revenues come from airlines paying it for engine flying hours, expects a further 1 billion pound outflow in the second half of 2020.
Rolls-Royce, with a market value of 5 billion pounds, could raise up to 1.5 billion pounds in the share sale, the sources said, although one source said the deal size would largely depend on how much the firm raised from selling assets.
Rolls-Royce’s Spanish unit ITP Aero is among assets earmarked for sale to raise funds, the sources said.
Several aviation companies and travel companies are expected to tap equity capital markets to shore up their balance sheets in coming months. Rising borrowing costs mean many deals are likely to involve some form of share issue.