LONDON MARKET OPEN: Rolls-Royce Sinks After Revealing Financing Plans

(Alliance News) - Stock prices in London opened higher on Thursday on hopes that a US stimulus agreement can be reached, while Rolls-Royce fell to the bottom of the FTSE 100 after announcing plans to boost its balance sheet.

US Treasury Secretary Steven Mnuchin said on Wednesday he was hopeful that a "reasonable compromise" could be reached with Democrats on additional stimulus spending for the battered economy.

President Donald Trump's administration and Democratic leaders have been deadlocked for weeks over a follow-up to the USD2.2 trillion CARES Act passed as the coronavirus pandemic intensified in March, after key provisions of the law that have been credited with bolstering the economy expired.

Following weeks of faltering negotiations, Mnuchin and Democratic House Speaker Nancy Pelosi spoke on both Monday and Tuesday and agreed to continue talking.

The large-cap FTSE 100 index was up 48.43 points, or 0.4%, at 5,914.53. The mid-cap FTSE 250 index was up 65.51 points, or 0.4%, at 17,380.81. The AIM All-Share index was up 0.2% at 961.35.

The Cboe UK 100 index was up 0.7% at 588.92. The Cboe 250 was up 0.4% at 14,712.42, and the Cboe Small Companies was up 0.3% at 9,202.85.

In mainland Europe, the CAC 40 in Paris was up 1.0%, while the DAX 30 in Frankfurt was 0.2% higher.

"European markets and the US futures are trading higher today. Investors are still hopeful for more stimulus despite the fact that we saw a breakdown in stimulus talks between House Speaker Nancy Pelosi and US Treasury Secretary. However, Pelosi and Mnuchin are expected to talk again on the subject of stimulus today," said AvaTrade analyst Naeem Aslam.

On the London Stock Exchange, Coca-Cola HBC was the best blue-chip performer, up 3.5% after Goldman Sachs upgraded the soft drinks bottler to Buy from Neutral.

At the other end of the large-cap index, Rolls-Royce was worst performer, down 6.1% at 121.95 pence after the jet engine maker set out plans to raise up to GBP5 billion in new funding, including a deeply discounted rights issue of new shares.

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.

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.

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.

"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," commented CMC Markets analyst Michael Hewson.

DCC was second worst performer, down 5.0%. Goldman Sachs downgraded the Irish support services firm to Sell from Neutral.

British American Tobacco was down 3.0%. The stock went ex-dividend, meaning new buyers no longer qualify for the latest payout.

The pound was quoted at USD1.2931 early Thursday, flat from USD1.2928 at the London equities close Wednesday.

The euro stood at USD1.1745, flat from USD1.1744 at the European equities close Wednesday. Against the yen, the dollar was trading at JPY105.45, flat compared to JPY105.46.

Brent oil was quoted at USD42.35 a barrel Thursday morning, up from USD41.92 at the London equities close Wednesday. Gold was trading at USD1,897.62 an ounce, flat from USD1,898.89.

In China, the Shanghai market is closed for a week from Thursday for the National Day Golden Week holiday, but the market in Hong Kong will only be shut for Thursday and Friday, re-opening on Monday.

Trading on the Tokyo Stock Exchange, among the world's biggest, was halted for the whole day Thursday after the system was hit by one of its worst-ever glitches.

A technical problem involving the delivery of market information was flagged to the operator of the Tokyo Stock Exchange, and business was stopped less than half an hour before the opening bell. The decision not to open for the rest of the day was taken around noon, with Japan Exchange Group giving no further details on the cause.

In Thursday's economic calendar, the Markit manufacturing PMI for the UK is at 0930 BST. In the afternoon there are US personal consumption expenditure figures and initial jobless claims at 1330 BST, followed by a manufacturing PMI reading at 1445 BST.

By Arvind Bhunjun; arvindbhunjun@alliancenews.com

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