Rolls-Royce Jumps on Potential Investment From Kuwait
Comment of the Day

September 25 2020

Commentary by Eoin Treacy

Rolls-Royce Jumps on Potential Investment From Kuwait

This article by Siddharth Philip and Dinesh Nair for Bloomberg may be of interest to subscribers. Here is a section:

Rolls-Royce Holdings Plc jumped on optimism about potential investments from two sovereign wealth funds in the British aircraft engine maker.

Singapore’s GIC is considering an investment in the engine maker, according to a person familiar with the matter who asked not to be identified. The Asian fund and Kuwait Investment Office and GIC would each contribute about 250 million pounds ($318 million), Sky News reported earlier.

Rolls-Royce said this month that it aims to raise 2.5 billion pounds through a rights issue, other forms of equity, or debt to brace against a drought in demand. The company continues to review all funding options, it said Friday.

“No final decisions have been taken as to whether or when to proceed with any such options, the precise amount that may be raised, or any allotment of shares to any investor including any sovereign wealth fund,” the company said.

Rolls-Royce shares advanced 3.1%, after rising as much as 14% in London. The company has a market value of 3 billion pounds, after dropping by 77% this year.

Rolls-Royce has been hard hit by broad industry downturn triggered by the coronavirus pandemic. A drop in long-distance travel has sharply curtailed demand for the wide-body airplanes its engines power. The London-based company, with a manufacturing outpost in Singapore, has also seen airlines ground their biggest planes, depriving it of vital maintenance revenue it collects when they fly.

While a share issue would dilute existing investors at the lowest prices since 2003, Rolls-Royce has also seen its debt downgraded to junk this year, meaning borrowing would come at a higher cost than before the pandemic.

Eoin Treacy's view

Rolls Royce is unlikely to have difficulty raising whatever funding its needs. There is no way the UK government is going to let the firm fail and it is a world leader in aircraft engines. The airline industry is currently in a major process of rationalisation. That represents a challenge but the company also has a significant footprint in developing the technologies for the sector’s big push into efficiency gains and speed gains.

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