Market Report: Debt rating review knocks Rolls-Royce (CORRECTED)

John Shepherd
Thursday 29 April 1993 23:02


SHARES in Rolls-Royce came under pressure late yesterday as Moody's announced a review of the A2 rating of the company's pounds 300m of senior debt for a possible downgrade.

Rolls-Royce shares, which earlier this month hit a high for this year of 139p, quickly dipped 5p to 128p on the news and closed at 129p. Nearly 2 million were traded.

Moody's said it was reviewing because of 'persistent weakness' of the commercial and military markets for its jet engines and spare parts.

The credit rating agency also cited the company's relatively high cost structure, given expectations for slower than anticipated long-term growth of its aircraft markets.

Moody's is also concerned about Rolls-Royce's role in customer financing for jet engines, which it said was 'expanding its financial exposure to the ailing airlines industry'.

British Aerospace, which also recently hit a high of 324p, was caught in Rolls-Royce's slipstream, dropping 5p to 313p.

Overall, the market was further depressed by the previous day's wave of selling of the FT-SE 100 futures contract for June. Leading equities, however, did regain some ground towards the close.

The FT-SE 100 index, off 23.6 points in early dealings, finished 10.5 down at 2,786.8, despite better than expected first-quarter results from ICI, up 31p to pounds 12.78, and a further easing of French interest rates.

Gilts continued to fall, losing another full point at the longer end, partly because of the lukewarm response to Wednesday's pounds 3bn auction.

Trading in BTR, Shell and Hillsdown stock options was heavy. Smith New Court, to the bewilderment of other traders, was said to have been crossing trades internally.

Shares in BTR fell 6p to 594p. Hillsdown rose 1p to 157p, despite the departure of Simon Moffat, finance director, after less than a year in the job.

Shell eased 3.5p to 550.5p. Takeover talk lifted Burmah Castrol 5p to 730p and Lasmo 3p to 151p. Total of France is the rumoured predator.

Wellcome featured among the main fallers, losing 13p to 722p. The shares have lost more than 200p over the past month, and were as high as pounds 10.50 only last December.

The company has been criticised by the Prescription Medicines Code of Practice Authority for the way it has promoted Zovirax, its anti-viral drug, through advertising that has prompted people to ask their GPs to prescribe it.

Its methods are said to have contravened tough industry guidelines on advertising of prescription drugs.

Additionally, the company is being sued by the widow of an Aids sufferer. She claims that AZT, the Aids drug made by Wellcome, quickened the death of her husband.

Commercial Union firmed 2p to 586p after announcing that claims arising from last Saturday's bomb in the City were unlikely to cost it more than pounds 25m. The impact will be included in its second-quarter results for 1993.

Most of the other composites retreated. General Accident slipped 3p to 560p, Royal Insurance gave up 6p to 319p, and Sun Alliance shed 2p to 327p.

Tiphook had a spectacular session after issuing a profits warning. Market makers were at one stage unable to keep up with the action, which saw the shares dive by 123p to 170p minutes after the announcement. Buying later in the day helped the price back to 230p. Nearly 8 million were traded.

Lonrho advanced 5.5p to 93.5p. It has received an 'acceptable' offer for the Observer newspaper from Manchester Evening News, owner of the Guardian.

Another high was set by Taunton Cider, up 3p to 216p on the back of this week's profit upgradings by analysts.

Further falls were recorded by leading shares, with investors wary in the wake of Wednesday's wave of selling of FT-SE 100 futures. The FT-SE 100 index, down 23.6 points in early trading, closed 10.5 lower at 2,786.8. Account ends on 7 May, and settlement is on 17 May.

Prudential has cut its stake in Spring Ram, the kitchens and bathrooms group that recently shocked investors by announcing a fall in full-year profits. More than 4 million shares have been sold by the insurance group, reducing its holding from 11.84 per cent to 10.72 per cent. The Pru said this had been brought about by changes in funds under management. Spring Ram shares held at 80p.

Sinclair Goldsmith has consummated its marriage with Conrad Ritblat in an all-share offer which, at Sinclair's 35p suspension price, values the target at pounds 11.3m. It is also launching a pounds 2.66m one-for-four rights issue at 27p. The 88.3 per cent of the shares not being taken up by directors and Conrad Ritblat will be placed, leaving the board holding 49.4 per cent. Dealings are expected to resume on 25 May.

Expect news shortly from Premier Consolidated Oilfields of an exciting venture into mainland China. The North Sea explorer is close to reaching agreement with Peking to carry out a detailed study of onshore prospects in southern China. A formal contract is likely to be signed soon that will give Premier access to one of the world's last unexplored areas. The shares rose 0.25p to 20.75p yesterday.

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