VANCOUVER, British Columbia (Reuters) - Shares in Air Canada dropped more than 20 percent at the start of trading on Wednesday after Canada's biggest airline announced a stock issue late on Tuesday that was pitched well below its share price.
Air Canada B shares, which can only be held by Canadians, fell 39 Canadian cents, or 21 percent, to $1.45 on the Toronto Stock Exchange.
Air Canada A shares fell by the same amount to $1.45.
Although the capital-raising will help the debt-laden airline's cash position "it comes at a price to existing shareholders as the dilution to earnings will be extensive," CIBC Capital Markets analyst Chris Murray said in a research note.
Murray said he was surprised at the timing and structure of the capital raising. He said he had expected some form of equity issue only next year, once Air Canada had shown a few quarters of improving earnings.
Air Canada, which is battling a slowdown in air travel, said it planned to raise around $300 million to increase its working capital through an issue of units.
Each unit, which consists of either one Class B voting share or one Class A variable voting share and half of one share purchase warrant, was priced at $1.62.
($1=$1.06 Canadian)
(Reporting by Nicole Mordant; editing by Peter Galloway)
158.94 (1.43%)
