Shares of Rexam plunged by more than 10 per cent this morning after Rexam, Europe’s biggest maker of cans for beer and soft drinks, confirmed that it is planning a rights issue to avoid a downgrade in its credit rating to junk status.

The company, which has net debts of £2.7 billion, did not confirm the size of any planned cash call — although it is expected to look to raise around £350 million.

The long-rumoured cash call, which is likely to accompany Thursday’s half-year results, comes after the FTSE 100 company conceded trading in beverage cans and plastic packaging was unlikely to improve in the second half of this year.

The fundraising is also likely to prompt Rexam to cut or cancel its interim dividend — on the basis that it would be inappropriate to pay out cash to shareholders at the same time as asking them for additional capital.

In a stock exchange announcement, confirming a statement issued on Sunday, Rexam said that it saw “no upturn in current trading conditions through 2009”.

It added: “The board has consequently concluded that the risk of a downgrade to sub investment grade has significantly increased and has now become unacceptably high. Accordingly, the company is considering a number of options including an equity raising.”

The shares, which closed on Friday at 323.75p each, plunged by 34.75p to 289p in early trade.

Kevin Lapwood, of broker Seymour Pierce, said: “We view this as a very opportunist move by Rexam to test the market’s appetite for an equity injection. Not too many people thought a rights issue was a possibility and the company makes the point that they’re a long way from breaching covenants.”

Rexam cautioned in May that weaker consumer demand and destocking by distributors had caused European can volumes to fall 6 per cent, the first drop in six years, and that profits would be more weighted than usual to the second half of the year.

In recent weeks, however, it has become clear that the pick-up in sales required to meet full-year profit forecasts has not materialised — also putting pressure on the cashflows needed to service interest payments on its £2.7 billion of debt.

Rexam has been hit especially hard by consumer weakness in Russia, where it has had a 90 per cent share of the can market since the $297 million (£181 million) purchase last year of Rostar. However, in order to secure approval for the deal from Russia’s competition authorities, Rexam had to agree to make a substantial capital investment in Rostar, providing a further drag on its profitability.

The company is likely to face criticism from analysts and investors for not seeking a rights issue earlier. Its shares have risen 18 per cent since June, helped by its refinancing of a £775 million revolving credit facility, the anticipated boost from warmer weather to European can volumes, and its exposure to a cyclical economic recovery.

Rexam confirmed that half-year results “will at least meet market expectations”, which are pitched at about £130 million, down 22 per cent on the year. It also provided reassurance that the headroom within its banking covenants “remains comfortable”.

But after February’s downgrade of its long-term corporate credit and unsecured debt rating by Standard and Poor’s from BBB to BBB-, any further weakness in profits risked a downgrade to junk status — which would entail Rexam paying tens of millions of pounds more a year in additional interest costs. “The loss of investment-grade credit rating would be detrimental to the group, both in terms of the cost and the availability of future credit,” it said.

Analysts currently expect Rexam to make pre-tax profits of £315 million this year — a figure that is now likely to fall between 5 and 10 per cent.

The company last launched a rights issue in 2003, when it sought £220 million to fund the purchase of Latasa, Brazil’s biggest can maker. Two years ago, it conducted a £280 million share placing alongside the acquisition of the plastics division of America’s Owens-Illinois.

Citigroup and RBS Hoare Govett, Rexam’s joint stockbrokers, are expected to underwrite the fundraising.

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