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UPDATE 2-Rolls-Royce rescue plan flies as shareholders back 2 bln stg rights issue

27 Oct 2020 / 20:28 H.

    * Chairman says shareholder vote "passed overwhelmingly"

    * 2 bln stg rights issue unlocks 3 bln stg of debt options

    * Shares up 2% (Adds CEO, chairman comments, share price)

    By Sarah Young

    LONDON, Oct 27 (Reuters) - Shareholders in Britain's Rolls-Royce approved the aero-engine maker's 2 billion pound ($2.61 billion) rights issue on Tuesday that will bolster the company's finances after the pandemic stopped planes flying.

    The approval of the capital raise boosts the group's total liquidity by 5 billion pounds by unlocking extra debt options, including 2 billion pounds from a bond issued earlier this month and an extra 1 billion pounds from a two-year bank loan.

    "The single resolution is passed overwhelmingly," chairman Ian Davis told an online meeting.

    Airlines pay Rolls based on how many hours its engines fly and a plunge in flying during the crisis has put Rolls's finances under intense scrutiny.

    But on announcing the rights issue plan at the start of October, CEO Warren East said securing the new shareholder funds and extra debt would take "any liquidity questions off the table through this crisis".

    Shares in Rolls-Royce traded up 2% to 230 pence after the results of the vote. The stock is up 75% since Sept.30, the day before the capital raise was announced. Overall, it has lost two-thirds of its value this year.

    Under the terms of the rights issue, investors can buy 10 new shares for every three they own at 32 pence each, a 41% discount to the theoretical ex-rights price.

    East told the meeting on Tuesday that the company had been right to go ahead with the equity raise this year instead of waiting.

    "We didn't want to put the business and our shareholders' interests at risk by gambling on what the situation might look like in the middle of next year," East said.

    Investors are backing East's plan to help the company ride out COVID-19 through cost cuts of 1.3 billion pounds, including axing 9,000 jobs and closing factories to adjust to lower demand from airline customers that fly with Rolls engines on Boeing 787s and Airbus 350s.

    Rolls also plans temporary shut-downs at factories and to reduce working hours and benefits as part of the those cost-cutting plans, the Financial Times reported.

    The chairman said that Rolls' successful bond issue last week, when it raised double its 1 billion pound target following strong demand, meant it would not at this time need to use an extension of a British government-backed guarantee on another loan.

    Demand for the bond issue showed "the effectiveness of this equity raise in reassuring debt markets," Davis added.

    The formal and detailed results of the shareholder vote will be published later on Tuesday.

    ($1 = 0.7673 pounds) (Reporting by Sarah Young; Editing by Paul Sandle and Barbara Lewis)

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