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Industrials and state aid – a marriage of necessity

State aid has been a lifesaver for many companies throughout the pandemic, and the planned extension of some of the measures by various governments is a testament to how badly needed that support has been and still is. While from April throughout mid-October the transportation industry has secured or applied for most state aid overall, since mid-August companies in the industrial products and services space have come under the spotlight, accounting for 40.96% of the total state aid sought in the 30-day period to 14 September, and as much as 84.46% in the 30-day period to 13 October (totaling €3.385 billion and €1.55 billion, respectively). 

Across the whole six-month period, industrial companies in the UK took up most of the government support allocated to the sector (€4.467 billion-equivalent), followed at some distance by Italy (€1.150 billion) and Germany (€1.050 billion). 

The top three issuers by amount of state aid sought between mid-September and mid-October were UK-based automaker Rolls Royce plc (€1.098 billion-equivalent), Spanish industrial products and services company Celsa Group (€200 million), and French industrial products and services Paprec France SA (€144 million).

Fighting on different fronts

For both Rolls Royce and Celsa, the state aid was only one piece of a much more complex puzzle aimed at strengthening their balance sheets. 

After burning £2.8 billion in cash in 1H20 as demand for its widebody engine plummeted given reduced flying hours, UK-listed Rolls Royce launched a £5 billion recapitalization that should leave it with £9.9 billion of pro forma available liquidity and runway for positive cashflow in 2022. The deal included an at least £1 billion-equivalent bond offering—which ultimately got printed at twice its launch size; a £2 billion rights issue; a £1 billion new term loan facility; as well as increasing an existing £2 billion UK Export Facility loan by up to £1 billion. 

The €200 million Celsa is seeking under Spain’s €10 billion support scheme via Sociedad Estatal de Participaciones Estatales (SEPI) would add on to a previous €75 million state-guaranteed facility. But the Barcelona-headquartered group is having a much harder time getting a deal done as several lenders argue that its woes go back to well before the pandemic broke out—and that it’s time for a full-blown balance sheet restructuring, rather than kicking the can down the road.