Rolls-Royce Holdings PLC shares yesterday fell to their lowest in 17 years after detailing a plan to raise as much as £2.5 billion (US$3.2 billion) to brace against a drought in demand for aircraft engines.
The British company is reviewing options, including a rights issue, other forms of equity and new debt, it said on Saturday, confirming an amount reported by the Financial Times that was greater than in previous reports.
The shares slid for a fifth straight session yesterday, dropping as much as 9.1 percent.
Rolls-Royce has lost more than three-quarters of its value this year amid a broad industry downturn triggered by the COVID-19 pandemic.
The company has been particularly hard hit by the drop in long-distance travel, which has virtually eliminated demand for the wide-body planes its engines power.
Many aircraft in the existing fleet have been temporarily or permanently grounded, depriving Rolls-Royce of vital maintenance revenue it collects when they fly.
Plane maker Airbus SE, supplier Leonardo SpA and Air France-KLM shares were also hammered, with Ben Smith, chief executive officer of the Franco-Dutch carrier, saying that more cost cuts might be needed after travel demand dropped off at the end of the summer holiday season.
Rolls-Royce stock sank 9.7 percent as of 9:28am in London, giving it a market value of £3.14 billion, while Airbus and Air France-KLM shares dropped as much as 4.4 percent and 5.3 percent respectively.
Leonardo stock fell to its lowest level in four months.
While a share issue would dilute existing investors at the lowest prices since 2003, Rolls-Royce has also seen its debt downgraded to junk this year, meaning borrowing would come at a higher cost than before the pandemic.
The company is in talks with sovereign wealth funds, including Singapore’s GIC Pte, as it turns to investors for the funds next month, the Financial Times reported, citing three people with direct knowledge of the matter.
“We continue to review all funding options to enhance balance sheet resilience and strength,” Rolls-Royce said in a statement on Saturday.
The options include “a variety of structures including a rights issue and potentially other forms of equity issuance. Our review also includes new debt issuance,” it said.
The company said it has not decided if it is moving ahead with any of the options or the timing of the fundraising.
Last week, it said it is continuing to consider ways to bolster its coffers after the coronavirus-driven aviation downturn slammed revenue.
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