Rolls-Royce: Why are shares at a 15-year low?

Rolls-Royce shares (LON: RR) plunged 56.7% today after the FTSE 100 firm voted in favour of a £2bn rights issue.

Shares in the engine-maker were trading at 94.85p today, which is a 95% fall in value over the course of the year.

Shares are currently their lowest since April 2003.

Yesterday shareholders voted in favour for the company to issue 6.4bn new shares, which unlocked £5bn in extra liquidity and a new £2bn bond issue.

New shares will cost 32p each, which is a 41.4pc discount to the 130p closing price on September 30.

Rolls-Royce has been hammered by the Coronavirus pandemic as international travel remains at record lows.

“At a time where the company is already struggling to cope with the fallout from the first set of lockdowns, the almost inevitable period of secondary lockdowns in Europe does little to bolster confidence for Rolls-Royce,” said Joshua Mahony, senior market analyst at IG.

“With the current market cap down to £1.54bn, it is understandable for investors to question the value of a company that could easily end up pushing for yet another multi-billion rights issue down the line.”

The firm slumped to a £5.4bn half-year loss in August.

Joachim Kotze, from Morningstar, commented: “This is a marked increase and investors who choose to follow their rights must have a high level of confidence that the company can return to previous levels of profitability to justify the commitment.

“Alternatively, if shareholders don’t follow their rights, they will be diluted away and will not get any upside at all – but at least they don’t risk losing additional capital,” he said.

Rolls-Royce shares (LON: RR) are currently trading +10.70% at 83,19 (1420GMT).

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Safiya Bashir
Safiya focuses on business and political stories for UK Investor Magazine. Her interests include international development, travel and politics.