Rolls-Royce is in talks with sovereign wealth funds, including Singapore’s GIC, as part of a plan to raise around £2.5bn from investors next month, according to three people with direct knowledge of the matter.
The UK aero-engine group is working with bankers at Goldman Sachs on the planned equity raise as it looks to become the latest company to tap stock market investors to repair a balance sheet badly damaged by the pandemic.
The group is aiming to launch the equity raise in the first weeks of October, two of these people said. As part of the talks Rolls-Royce and its bankers are in discussions with multiple sovereign wealth funds including GIC, the state fund of the island-nation where the company has significant operations.
However discussions over the equity raise are ongoing and one person cautioned that the board has been determined to push the decision to the last minute.
On Friday Rolls-Royce shares fell to a 16-year low at 180p, giving it a market value of £3.45bn. Its net debt is £4.4bn.
Rolls-Royce and GIC declined to comment.
In response to speculation last week that an equity raise was imminent, Rolls-Royce said that it was reviewing a range of funding options, which could come in the form of debt and equity, but that no final decision had been taken.
It also attempted to reassure investors about its liquidity, which it said sat at £8.1bn.
The UK group added that it had reduced costs by £1bn this year and had started to reorganise its civil aerospace business to find further savings.
Finally, the company said it had earmarked potential disposals, including its Spanish aircraft engine manufacturing business ITP Aero, to raise a further £2bn.
Rolls-Royce is in discussions with private equity groups about a deal over ITP. It is expected to inject some non-core businesses into ITP to give it scale and enhance its attraction to bidders. The group is also trying to sell its Bergen diesel engine business in Norway, but is struggling to find buyers.
After agreeing a £2bn term loan in July, which was supported by UK Export Finance, the company told investors that it had enough facilities in place to take it through 2021.
However Rolls-Royce is facing a severe strain on its balance sheet due to the cash drain from the crisis and the need to raise new debt facilities to ensure liquidity. It has a £1.9bn revolving credit facility which has not yet been drawn down, but which will have to be repaid in October next year should it do so.
The company lost its investment grade rating earlier this year, which could hamper its ability to secure new orders and long-term maintenance contracts when eventually the market begins to recover.
Nevertheless people close to the situation said some investors had been pushing the company to increase debt rather than call on shareholders through a rights issue. Some investors had been hoping the group would be able to hold off a cash call until it could show some results from its restructuring.
But with many in the industry recently suggesting the hoped for recovery could be further away than expected, Rolls-Royce can no longer delay, said one person close to the subject.
The company is already facing a longer haul to recovery than other engine makers, with its focus on engines for larger twin-aisle jets. The long-haul market segment is expected to recover much later than short haul and regional travel.