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Punch shares sink on news of cash call

<!--StartFragment--> SHARES in pub company Punch Taverns plummeted yesterday after it unveiled a &pound;350m fundraising aimed at reducing its large debt burden.<br /><br />Stock in the firm plunged 30 per cent to 104p by yesterday&rsquo;s close.<br /><br />Punch, which owns 7,900 pubs around the UK, said it would use the bulk of the proceeds to buy back &pound;275m in outstanding convertible bonds, admitting that tough trading conditions meant it might not be able to redeem them when they mature in December 2010.<br /><br />&ldquo;While we are confident of the longer-term expectations for the group and our expectations for the full-year remain unchanged, we remain very cautious over the near-term due to the lack of forward visibility on trading outlook,&rdquo; the company said.<br /><br />Punch said it aims to raise half of the money through a firm placing and half through an open offer, with the price set at 100p per share yesterday following a book build.<br /><br />The offer price is a four per cent discount to yesterday&rsquo;s closing price, but a staggering 49 per cent discount to the closing price on Friday.<br /><br />&ldquo;Punch is making a major move to address its debt concerns,&rdquo; KBC Peel Hunt analyst Paul Hickman wrote in a note to clients, estimating that the capital raising would allow Punch to redeem its convertibles and repay about &pound;140m of other debt.<br /><br />Pubs have suffered in the recession, putting Punch under pressure as it services outstanding debt of about &pound;4.2bn.<br /><br />The company has suspended dividend payments, slashed costs, and halted pub acquisitions to prioritise debt reduction, buying back &pound;334m of debt at a cost of &pound;205m. <!--EndFragment-->