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Rolls-Royce nosedives on fundraising speculation

The shares dropped by 10 per cent of Friday as the engine maker confirmed it is reviewing options to strengthen its balance sheet
July 3, 2020

Shares in Rolls-Royce (RR.) hurtled down over 10 per cent on Friday, finishing the day at 263p. This followed a report by Bloomberg suggesting that the engine maker is considering its options to raise funds amid the downturn in the aerospace industry. Citing “people familiar with the matter”, the news outlet said the group is exploring a possible £1.5bn-2bn equity raise and the sale of some of its assets. This includes Spanish subsidiary ITP Aero, which last year attracted the interest of information technology and defence company Indra Sistemas (ES:IDR)

IC TIP: Sell at 263p

In response to the speculation, Rolls confirmed that it is “reviewing a range of potential options” but said that no decisions had yet been made. It maintains that its current financial position and liquidity “remain strong”. That contrasts with the view of analysts at JPMorgan Cazenove, who said back in April that the group is “severely under-capitalised” and suggested that it would need to raise £6bn of equity.  

This latest development follows a string of bad news for Rolls. It announced a major reorganisation in May that will see jobs and capital expenditure cut as it looks to make annualised savings of around £1.3bn. Hedge fund AKO Capital divested its entire 5.2 per cent stake in Rolls that same month, and ratings agency Standard and Poor’s slashed its credit rating from investment grade, ‘BBB-’,  to junk status, ‘BB’. Fitch Ratings followed suit last month, downgrading it to ‘BBB-’ – it anticipates “weaker than previously expected cash flow generation” and believes Rolls will not meet its already lowered target of 250 wide body engines guidance for this year.