LONDON (Reuters) – Shareholders of the British Rolls-Royce RR.L on Tuesday approved the aircraft engine maker’s £ 2 billion ($ 2.61 billion) rights issue, which will bolster the company’s finances after the pandemic halted aircraft flight.

FILE PHOTO: A man looks at the Rolls Royce Trent engine on display at the Singapore Airshow in Singapore on February 11, 2020. REUTERS / Edgar Su

Approval of the capital increase increases the group’s total liquidity by £ 5bn by unlocking additional debt options, including £ 2bn of a bond issued earlier this month and an additional £ 1bn a two-year bank loan.

Airlines pay Rolls based on how many hours their engines fly, and a drop in flights during the crisis put Rolls’ finances under scrutiny.

But in announcing the rights issue plan in early October, CEO Warren East said securing new shareholder funds and additional debt would eliminate “any liquidity issue during this crisis.”

A statement released on Tuesday showed that 99.5% of shareholders approved the rights issue plan, confirming the chairman’s earlier comments that the result was passed by an overwhelming majority.

Rolls-Royce shares traded down 1% to 223 pence at 1308 GMT, reversing the 2% rise immediately after the meeting. The title is up 75% since September 30, the day before the announcement of the capital increase. Overall, it has lost two-thirds of its value this year.

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

East told Tuesday’s meeting that the company was right to go ahead with the capital increase, rather than wait.

“We didn’t want to put the company and the interests of our shareholders at risk by betting on what the situation might look like in the middle of next year,” East said.

Investors back East’s plan to help company overcome COVID-19 with £ 1.3 billion cost cuts, including cutting 9,000 jobs and closing factories to adapt declining demand from airline customers who fly Rolls engines on Boeing 787s and Airbus 350s.

Rolls is also planning temporary plant closures and reducing working hours and benefits as part of these cost-cutting plans, the Financial Times reported.

Company chairman Ian Davis said Rolls’ successful bond issue last week, when it doubled its £ 1bn target following strong demand, meant it didn’t would not need at this time to use an extension of a UK government backed guarantee on another loan.

The demand for bond issuance has shown “the effectiveness of this capital increase in reassuring debt markets,” Davis said.

($ 1 = 0.7673 pounds)

Reporting by Sarah Young; Editing by Paul Sandle and Barbara Lewis

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