Rolls-Royce is also hoping to receive more financial support from the UK government, through a new £1bn loan.
UK Export Finance has indicated that it would, in principle, support an extension of its 80% guarantee of our existing £2bn five year term loan to support a loan amount increase of up to £1bn.
This is subject to completion of the Rights Issue, agreement of terms with lenders and approval of those terms by UK Export Finance and HM Treasury, and there is therefore no guarantee that this increase will take place.
Rolls-Royce launches £2bn rights issue
Rolls-Royce, one of the UK companies worst hit by the Covid-19 pandemic, has announced plans to raise billions of pounds to shore up its balance sheet.
The Derby-based jet engine maker is tapping its shareholders for £2bn through a rights issue (in which investors buy new shares at a discounted price). It is also planning to raise another £1bn through a bond offering.
Pressure has been building on Rolls-Royce ever since the pandemic began, and countries began imposing flight restrictions and quarantine rules. Demand for new engines has slumped as airlines have cancelled orders.
With many planes grounded, RR’s engine servicing business has also had less business.
Rolls-Royce told the City this morning that these new funds will help it through the Covid-19 crisis, and:
- Improve our liquidity headroom
- Reduce our level of balance sheet leverage
- Support disciplined execution and investment to ensure we maximise value from our existing capabilities and pursue disposals in a manner that delivers value, as we position the Group to benefit from new technologies focused on sustainable power.
Introduction: Stimulus hopes lift markets
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Hopes of a last-ditch stimulus package to nurse the US economy through the Covid-19 crisis are lifting markets this morning, as investors wait to see how the world’s factories fared last month.
After a rough September, European shares should begin October with some gains – Britain’s FTSE 100 is expected to rise around 0.5%.
Last night, US treasury secretary Steven Mnuchin and House of Representatives speaker Nancy Pelosi failed to strike a coronavirus stimulus deal — but they’ve not given up… and they might be getting closer.
Pelosi postponed a vote on the Democrats’ proposed $2.2tn stimulus package so that talks between the two sides could continue, after Mnuchin indicated the White House might raise its own scheme to $1.5tn.
Hopes of a compromise gave Wall Street a late lift, with the Dow rallying by 1.2%. It also pushed stocks higher in Asia (although not in Japan, where a technical glitch meant trading was abandoned for the day.)
Jingyi Pan, senior market strategist at IG, explains:
Hinging on hopes for the passage of the next US fiscal stimulus package, US equities mostly concluded the quarter on a positive note. US treasury secretary Steven Mnuchin’s latest optimism in working out the next fiscal package served as a ray of sunshine through the clouds, although some doubts cast by the Republican party did find some paring of gains later into the Wednesday session.
The fact of the matter however remains that both sides remain at work in ironing out the details that would add this into the list of things to watch into the end of week. Assuming any middle ground achieved between what had been the higher bound for Republicans at $1.5 trillion and Democrat’s latest $2.2 trillion plan in terms of costs, this could potentially provide the US market with another booster shot. One to watch.
The latest weekly US unemployment figures are expected to show the need for fresh stimulus. Economists predict that around 850,000 people filed new jobless claims last week.
City traders will also be watching latest survey of purchasing managers at factories across the eurozone, the UK and the US. Yesterday’s Chicago PMI showed a sharp jump in activity, but today’s figures are likely to show growth slowed at British manufacturers.
- 9am BST: Eurozone manufacturing PMI for September
- 9am BST: Italian unemployment rate for August
- 9.30am BST: UK manufacturing PMI for September
- 10am BST: Eurozone unemployment rate for August
- 1.30pm BST: US weekly jobless claims figures
- 2.45pm BST: US manufacturing PMI for September