LONDON BRIEFING: Rolls-Royce Seeks GBP5 Billion In New Equity, Debt

(Alliance News) - Rolls-Royce Holdings on Thursday set out plans to raise up to GBP5 billion in new funding, including a deeply discounted rights issue of new shares.

The jet engine maker intends to raise gross proceeds of around GBP2 billion by way of a fully underwritten 10 for 3 rights issue of 7.4 million new shares at 32 pence each. The stock closed down 7.4% at 130.00p on Wednesday and was down 3.1% to 125.94p early Thursday.

The Covid-19 pandemic has sapped demand for air travel and emptied skies, depriving Rolls-Royce of vital maintenance revenue it generates when planes fly.

Last week, the company moved to distance itself from a media report which said it was in talks with the Kuwait Investment Office over it backing a GBP2.5 billion fundraising.

In conjunction with the rights issue, Rolls-Royce said it intends to commence a bond offering to raise gross proceeds of at least GBP1 billion. The Trent 1000 engine maker also agreed commitments for a new two-year term loan facility of GBP1 billion and received an indication of support from UK Export Finance for an extension of its 80% guarantee to support a potential increase of the existing GBP2 billion five-year term loan of up to GBP1 billion.

Rolls-Royce said the measures will provide the company with "improved financial resilience" and a more appropriate balance sheet structure in order to weather macro-economic risks before "we return to strong cash generation", which is expected in 2022.

"The capital raise announced today improves our resilience to navigate the current uncertain operating environment. By raising additional capital now, we will improve our liquidity headroom and reduce our level of balance sheet leverage, while supporting disciplined execution and investment to ensure we maximise value from our existing capabilities," said Chief Executive Warren East.

Here is what you need to know at the London market open:

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MARKETS

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FTSE 100: up 0.9% at 5,917.70

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Hang Seng: Hong Kong market closed for holiday.

Nikkei 225: trading suspended in Tokyo due to trading glitch

DJIA: closed up 329.04 points, 1.2%, at 27,781.70

S&P 500: closed up 27.53 points, 0.8%, at 3,363.00

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GBP: up at USD1.2950 (USD1.2928)

EUR: firm at USD1.1751 (USD1.1744)

Gold: flat at USD1,898.57 per ounce (USD1,898.89)

Oil (Brent): up at USD42.47 a barrel (USD41.92)

(changes since previous London equities close)

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ECONOMICS AND GENERAL

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Thursday's Key Economic Events still to come

China National Day. Financial markets closed in Hong Kong and Shanghai.

0930 BST UK CIPS-Markit manufacturing purchasing managers' index

1130 BST UK BoE Chief Economist Haldane speaks at Global Moral Money Summit

0955 CEST Germany manufacturing PMI

1000 CEST EU eurozone manufacturing PMI

1100 CEST EU unemployment

1100 CEST EU producer price index

0730 EDT US Challenger job-cut report

0830 EDT US personal income and outlays

0830 EDT US initial jobless claims

0945 EDT US manufacturing PMI

1000 EDT US ISM report on business manufacturing PMI

1000 EDT US construction spending

1030 EDT US EIA weekly natural gas storage report

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Delays to the rollout of 5G across the UK could cost the country tens of billions of pounds in lost economic output, a new report by the Centre for Policy Studies suggests. It warns that challenges posed by legislation, the phasing out of Huawei equipment and the coronavirus pandemic are stalling the delivery of 5G and could prevent faster economic growth. The report suggests that by 2027 as many as 11 million homes and businesses could be missing out on vital new digital connectivity, at a cost to the economy of more than GBP41 billion.

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The manufacturing sector in Ireland registered a decline in output, new orders and employment in September as demand weakened as result of the second wave of Covid-19 infections, survey results showed. IHS Markit said the AIB Ireland manufacturing purchasing managers' index fell to the neutral score of 50.0 points in September from 52.3 in August. Readings below 50.0 signal a deterioration in business conditions, while readings above 50.0 indicate improvement. Although the neutral PMI reading didn't suggest an overall deterioration in business conditions, this was only a result of lengthening in suppliers' delivery times, AIB said. Exports, backlogs, purchasing and stocks fell while input price inflation hit a 17-month high.

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BROKER RATING CHANGES

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GOLDMAN SACHS CUTS DCC TO 'SELL' ('NEUTRAL') - TARGET 5000 (6800) PENCE

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GOLDMAN SACHS RAISES COCA-COLA HBC TO 'BUY' ('NEUTRAL') - TARGET 2500 (2330) PENCE

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GOLDMAN SACHS CUTS BRITVIC TO 'NEUTRAL' ('BUY') - TARGET 910 PENCE

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BERENBERG INITIATES RPS GROUP WITH 'BUY' - TARGET 60 PENCE

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COMPANIES - FTSE 100

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Smith & Nephew said it expects a third-quarter underlying revenue decline of around 4% when it reports results for the period on October 29. The medical devices maker said all three of its franchises showed significant recovery following an overall underlying revenue decline of 29% for the second quarter. "The improvement was strongest in our Orthopaedics franchise, as global levels of elective surgery continued to recover. Monthly group growth rates were broadly stable through the quarter, with some seasonality and monthly variation across both franchises and regions, reflecting the continuing impact of Covid-19," the company said.

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Kingfisher said that it has completed the sale of its Castorama Russia business to Russian home improvement company Maxidom for RUB7.4 billion, about GBP73 million. Kingfisher said it will received 80% of that now and 20% in equal instalments over two years.

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COMPANIES - FTSE 250

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Halfords said it expects to surpass profit targets after strong summer sales momentum, driven by demand for cycling and staycations continued into September. It said it now expects to post pretax profit above GBP55 million for the first half of the current financial year. Earlier this month, the motoring and bikes firm revealed that sales jumped over the 20 weeks to August 21 as it was particularly buoyed by its strong cycling business. It has now said that, despite the peak cycling season coming to an end, the "positive momentum continued" over the following five weeks. Group like-for-like sales grew by 22% over the period to September 25, with cycling like-for-like sales rising by 46%.

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Britvic completed the sale of its juice business in France to Refresco. The sale includes three juice manufacturing plants and the Fruite brand. Britvic will retain the Pressade and Fruit Shoot brands, which will be made by Refresco under a partnership agreement. The deal won't affect the Teisseire and Moulin De Valdonne brands, which are made at Britivic's production site in Crolles. The company didn't provide financial details of the agreement.

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Thursday's Shareholder Meetings

Abbey

Anglo African Oil & Gas

Boston International Holdings

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By Tom Waite; thomaslwaite@alliancenews.com

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