Auckland, Sept 23 NZPA - Pyne Gould Corporation (PGC) says its $237 million rights issue should give investors confidence in the company.

"Doing nothing was, and is not an option," said director Bryan Mogridge.

The Christchurch-based company has put together a deeply discounted rights issue supported by its largest shareholder George Kerr.

Shareholders can subscribe for six new shares for every one share held at 40c a share, which is a discount to the 99c the shares closed at today.

The rights issue is underwritten by First NZ Capital Securities Ltd and Mr Kerr's company Pyne Family Holdings Ltd will sub-underwrite to the tune of $27.2m.

Pyne Family Holding, the largest shareholder with a 10 percent holding, will take up its entitlement of 59.2 million shares for $23.68m.

Brokers said the rights issue was similar to the capital raising by Nuplex this year in that a large number of new shares are being offered cheaply. The offer will be attractive to new shareholders but dilutes existing shareholders who trade their rights.

The company has been criticised for poor disclosure and related party transactions, including those involving its finance company subsidiary Marac.

It also owns 100 percent of Perpetual Trust, a 21 percent shareholding in PGG Wrightson and 100 percent of funds management company Perpetual Asset Management.

PGG Wrightson is itself expected to undertake a capital raising and PGC today did not rule out taking part in it.

After the PGC rights issue is completed the company intends to raise between $15m and $30m via a separate placement to institutions and investors, including to sub-underwriters. Pyne Family Holdings is entitled to participate in the placement but must pay the higher of the bookbuild price or 49c a share.

This could increase Mr Kerr's shareholding but he can't go over 20 percent.

The company will also launch a share purchase plan under which shareholders can apply for $5000 worth of additional shares, which is expected to raise about $3m.

The rights offer will start on October 1 and close on October 19. The underwriting agreement has a range of termination events that relate to financial markets and the group.

The placement and share purchase plan are not underwritten.

The company said Marac's banking syndicate has waived any right of review that arose out of Marac's credit rating downgrade to BB plus with a negative outlook.

The capital raising plan came after the company registered a loss of $54.35m for the year to June 30, a year after a record $44.76m profit.

Mr Mogridge told a media conference he expected the capital raising would improve investor confidence.

"It's a considerable capital raising, there's no doubt about that," he said.

"Our intention was to do this properly, and to have the company well positioned to take advantage of what we believe are opportunities and get on and do it."

Chief executive Jeff Greenslade said the capital raising would significantly improve the financial position of the company.

"From an investor perspective the recapitalisation provides the foundation for future growth. Operationally, it gives us the financial flexibility to grow the group's businesses both organically and through acquisitions."

Marac, which PGC wants to become a bank, stopped lending to property developments earlier this year following impairments on property loans and now focuses on plant and equipment and vehicle financing.

PGC said today it plans to retain about $50m of the money raised for investment in existing activities, including its asset management strategy and to position it to capitalise on value-enhancing consolidation opportunities that may arise.

About $35m will be injected into Marac to ensure it complies with non-bank deposit taker regulations and to position Marac to become a registered bank.

Another $35m will be used to reduce PGC parent company debt to zero, $13m will be applied to pay capital raising transaction fees, and it will partially fund about $125m of the sale of some Marac property loans to Marac Financial Services.

PGC will be offering products through Marac, Perpetual Trust and the newly-created Perpetual Asset Management.