Johnston Press yesterday announced a deeply discounted £212.3m rights issue after a downturn in the advertising market left the company at risk of breaching its banking covenants.

The publisher of more than 300 newspapers, including The Scotsman and Yorkshire Post, also revealed that Malaysian businessman Ananda Krishnan is to take a 20% holding, via his company Usaha Tegas, in part from buying shares from Johnston Press's founding family, whose stake will fall from nearly 20% to 7.6%. Krishnan, who has had a 0.2% shareholding in the company for some time, will join its board as a non-executive.

But the move dismayed the market, which sent its shares down 15.1% to 115.25p, their lowest close for more than 12 years.

Under the scheme, Johnston Press will offer investors a new share for every one they already own, at a price of 53p, a 61% discount to the closing price on Tuesday night.

The company, which in March announced that performance-related bonuses awarded to executives Tim Bowdler, Stuart Paterson and Danny Cammiade almost doubled to more than £1.1m last year, blamed increasingly weak advertising for the rights issue, with like-for-like revenues down 7.1% over the 17 weeks to April 26.

Particularly hard hit were property advertising, down 12.1% over the period, motors, down 16.4%, and employment, down 5.3% on a like-for-like basis.

"The current environment and outlook are uncertain and there remains a possibility that if revenues were to deteriorate further, a breach of the group's financial covenants could occur," the company said in a statement to the stock exchange.

Chief executive Tim Bowdler told The Herald the company had not expected to breach its banking covenants but "rather than leaving things to chance" it decided to restructure the balance sheet.

"We as a board were looking at a range of options that we could pursue and we did consider things like disposals or renegotiating bank debt but we decided on raising new equity," he said.

He denied there was any pressure from the banks for the move and added: "We didn't discuss a rights issue with any of our banks. But it is true that the credit crunch has made the debt markets more difficult in terms of rearranging debt."

Asked whether he was ruling out redundancies or disposals in the coming months, Bowdler said: "We were looking at a whole range of things and came to a view that what we were doing is in the best interest of shareholders and we will keep running the company on a sensible and prudent basis. In that regard I do not expect a change."

He added that Usaha Tegas, which has been a 0.2% shareholder for some time, took the initiative and maintained that the Johnston family were not looking for an exit before the capital raising became an option.

Krishnan's most high-profile investment in the UK was the Excel conference centre in London's Docklands which he recently sold for £320m, netting an estimated profit of £120m.