Weekend speculation over a heavily discounted rights issue has seen Rolls Royce shares continue to decline this week, with management also reported to be in lengthy talks with a host of sovereign wealth funds. At the end of last week there was also speculation that the Kuwait Investment Office was also mulling a stake, which would have put the UK government in a somewhat tricky situation given it has a veto of sorts over any overseas shareholders.
Rolls Royce clearly needs the cash to shore up its balance sheet, given the sharp drop in revenues it has experienced in the last few months, and which is likely to continue for some time to come. The continued procrastination however is not helping, and last night’s news that it had called off its talks with KIO and Singapore’s sovereign wealth fund closed off another avenue for the business. It’s being reported that the failure of talks was due to opposition from existing shareholders, which is fair enough, but then these existing shareholders need to come up with alternatives or face the breakup of the business. A vote will be held on the deal on 27th October, where shareholders will have the opportunity to either put up or shut up.
Today’s announcement that Rolls Royce will be launching a £1bn bond issue as well as a £2bn 10 for 3 rights issue at a 41% discount to 130p is therefore long overdue, and will hopefully be well received by the same recalcitrant shareholders who were reluctant to dilute their stakes with funds from overseas.