Punch Taverns had more than 11 per cent wiped off the value of its shares today, making it the FTSE 250's biggest faller, after shocking the market by scrapping its final dividend.

The bad news from Punch hit other pub operators, as investors feared that Britain's economic doldrums were keeping drinkers away from the bar. Shares in Punch dived by 36.7p to 279.75p, while Mitchells & Butlers dropped by over 5 per cent to 288.5p per share. JD Wetherspoon fell by 2.7 per cent to 266.25p.

Punch said that it wanted to keep the cash that it would have paid in a dividend to repay debt early to shore up its balance sheet. The money will also be used to help licensees at Punch's leasehold pubs to offer drinks discounts and other sales promotions.

At the same time, the pub company delayed its conversion to a real estate investment trust (Reit) because of the implementation costs and the fact that it would have to pay substantially larger dividends

Although repayment of the company's convertible bonds is not due until December 2010, Punch wants to step up repayment of these bonds. Analysts welcomed the move.

Analysts at Merrill Lynch said: "Whilst the news is clearly not good for sentiment, the stock was never a dividend play. The payment of the convertible has been a bone of contention among investors and this move by the company makes it a non-issue in our view".

Blue Oar analysts said that Punch appeared to be preparing for tough trading conditions for the rest of 2008. "The pressure on pubs in general remains relentless," the analysts said.

In a pre-close statement ahead of its full-year results on November 4, the group said it would meet expectations on profits before exceptional items, despite taking a hit of about £6 million after giving some of its struggling pub leaseholders concessions on their rent.

Punch said: "Whilst cash flows remain strong, we are mindful of the ongoing challenging market conditions that impact both our licensees and our managed business. It is important that we continue to invest in our pubs alongside our licensees to ensure that we continue to improve the quality of our pub estate."

Punch said that like-for-like contributions from its 7,560-outlet leased estate was down 3.4 per cent, as the company had flagged earlier this year.

The company repaid £75 million of debt in the year to August 23.

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