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On 1 October 2020, aviation engineering specialist Rolls-Royce Holdings plc confirmed its intention to raise approximately £2 bn by way of a fully underwritten rights issue. The announcement follows a month of media speculation after the company’s 2020 half year results confirmed that the FTSE 100 stalwart had been significantly impacted by the COVID-19 pandemic.
Despite a challenging start to 2019, several efforts to transform the business found Rolls-Royce ending the year in what they claimed to be a ‘robust liquidity and financial position’ that put them on track to meet the targets set for 2020. However, the unprecedented effect of COVID-19 on the aviation sector hit the aircraft engine specialists hard. Rolls-Royce was forced to undertake the largest reorganisation of its civil aerospace business in the company’s history in May, resulting in the loss of around a third of the workforce and the consolidation of its manufacturing operations. Prior to the release of the company’s half year results, CEO Warren East noted that ‘These are exceptional times. The COVID-19 pandemic has created a historic shock in civil aviation which will take several years to recover.’
Rolls-Royce published its half year results in August, declaring that it was ‘reviewing a range of options to further strengthen [its] balance sheet,’ including a £2bn loan agreed in H2. It was also anticipated that another £2bn was necessary to fund operations and maintain sufficient liquidity, sparking media speculation that the company was planning to raise funds from shareholders. Rolls-Royce responded on 16 September, stating that no final decisions had been taken. A further announcement on 21 September affirmed that the company was evaluating a ‘variety of structures, including a rights issue,’ which was soon followed by an announcement on 25 September reiterating that no decisions had been made. The following week, Rolls-Royce confirmed that it planned to raise gross proceeds of approximately £2bn by way of a fully underwritten 10 for 3 rights issue and conduct a bond offering to raise at least £1bn, the latter of which was confirmed on 5 October.
Rights issues, traditionally associated with raising finance in challenging conditions, are experiencing a resurgence after a quiet spell in 2019, which saw only two rights issues complete. The Rolls-Royce rights issue, should it go ahead, will be the seventh rights issue announced in 2020. With Q4 data yet to be analysed, 2020 already looks set to total the highest value in aggregate gross proceeds for secondary fundraisings in the last ten years. The Rolls-Royce fundraising will also be the largest secondary offering this year, alongside the £2bn placing by Compass Group in May, and the largest rights issue on the Main Market of the London Stock Exchange since Cineworld raised £1.7bn in 2018.
The rights issue is subject to shareholder approval at a general meeting expected to be held on 27 October 2020.
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