Rolls-Royce confirms possible £2.5bn fund raising

Responding to media speculation over the weekend, the UK engineer said on Monday it was reviewing "all funding options" with the intention of strengthening its balance sheet.

"We are evaluating the merits of raising equity of up to £2.5bn, through a variety of structures including a rights issue and potentially other forms of equity issuance. Our review also includes debt issuance," it said. "No final decisions have been taken as to whether or when to proceed with any of these options, or as to the precise amount that may be raised."

At 1000 BST, the shares were down 9% at 164.35p. The stock started the year at 681p.

Rolls-Royce is one of the world’s biggest producers of airplane engines and has been hit hard by the Covid-19 pandemic, which caused international travel ground to a halt. Last month, it reported a record £5.4bn first-half loss.

As well as the potential fund raising, the company has already identified a number of possible disposals that are expected to generate proceeds of around £2bn and has launched a company-wide restructuring, with a particular focus on the civil aerospace business. Rolls-Royce also supplies the military and power and nuclear companies.

The potential fundraising was first reported in the Financial Times, which said Rolls-Royce was talking to a number of investors and sovereign wealth funds - including Singapore’s GIC - and that it hoped to launch the equity raise in early October.

Andrew Gollan, analyst at Berenberg, said: "The shares are unlikely to outperform into potentially unavoidable dilution, although subsequently we expect balance sheet stability to be a catalyst to re-rate the shares."