Regional newspaper company Johnston Press has announced a deeply discounted rights issue following a drop in advertising revenue.
The cash call comes as Malaysian investment firm Usaha Tegas takes a 20 per cent stake in Johnston Press through a share subscription and the acquisition of a further 10 per cent of the company from the group's family trusts.
Johnston Press plans to issue 320 million new ordinary shares at a price of 53 pence per share, representing a 61 per cent discount to the closing price on Tuesday.
The group said it was forced to make the rights issue in order to strengthen its balance sheet and service its £700 million debt.
Trading conditions were "very difficult".
Shares in the company dropped 17 per cent following the announcement.
Johnston Press, the owner of 18 daily newspapers and 300 weekly titles including the Yorkshire Post and the Scotsman, experienced a decline in advertising revenues of 7.1 per cent for the 17 weeks to April 26.
The first eight weeks of the year saw a 4.2 per cent drop in advertising income.
It said property, motoring and employment advertising revenues were hardest hit, down 12 per cent, 16 per cent and five per cent respectively on a like-for-like basis.
The group said: "Given the more challenging environment, the group is working hard on managing its cost base and, providing there is no further deterioration in the advertising environment, expects to deliver a satisfactory result for 2008 in very difficult circumstances."
Chief financial officer Stuart Paterson said the group had considered several options including selling assets and had been forced to act due to the current volatility in the advertising markets.
He said: "We reached the view that the level of debt in the business was probably inappropriate but it is important to state that we weren't expecting to breach our covenants at the end of June at all.
"But with the outlook as it is ... we decided to enter a fundraising period."
Ralph Marshall of Usaha Tegas said the investment firm believed in the potential of Johnston Press and its investment would help the group develop new media opportunities.
Johnston Press said that Usaha Tegas' knowledge of the media sector would provide the company with "valuable insight and guidance through the current macroeconomic climate".
The Malaysian firm, owned by Sri Lankan billionaire Ananda Krishnan, is said to be planning to appoint a new board member to Johnston Press after the deal.
Analysts were concerned by news of the rights issue.
Landsbanki analyst Andrew Walsh said: "A deep discounted rights issue at a 61 per cent below the current market valuation says a lot about the group's financial position and the market's tolerance for balance sheet building as opposed to business expansion fund raising exercises.
"The stress in the group's current capital structure and deterioration of advertising revenues are beyond our and the market's expectations. "