JOHNSTON Press shareholders are to be offered new shares in the company at 3p a share, one-eighth of their market value before the offer, as the company embarks on a £360 million refinancing to pay down debt and fund its digital growth strategy.

The Edinburgh-based publisher's shares dropped 29%, from 24p to17p, as the company launched a £138m rights issue, alongside a new £220m bond issue and a £25m credit facility. The company also announced a partnership with Sky which will see the TV giant subscribe £2.3m for shares at 17p, enabling it to take up rights issue shares and invest a total £5m.

Johnston said the radical refinancing would accelerate the repayment of its debt whilst setting loan maturities beyond 2018. Ashley Highfield, chief executive, said it was "another key milestone" and would "provide a platform from which the group can return to overall revenue growth and generate increased surplus cash flowto grow its digital presence further".

At a meeting in London on May 27, shareholders will be asked to approve the issue of almost 4.6 billion new shares, which would more than double Johnston's current market value. Colin McLean, managing director at SVM Asset Management in Edinburgh, which is not a shareholder, said he expected institutions to support the rights issue. He said: "The market is in a phase where as long as it likes management it will back turnround stories."

In an interim management statement the company said it had continued to build on the good progress achieved in 2013. Digital revenues had continued to grow in line with the second half of last year, circulation revenues were broadly suffering the same rate of decline as in 2013, and print advertising revenues were falling more slowly than in the equivalent period in 2013.

"As a result, adjusted group revenues for the 17 weeks to April 2014 recorded a mid-single digit rate of decline over the same period last year." That represented an improving trend on the last financial year, Johnston said, adding that its planned 2014 cost initiatives remained on track.

"In March 2014 digital audiences grew to 15.9 million unique users, representing an annual increase of 42%," Johnston said.

The regional advertising partnership with Sky, which will begin in two of Johnston's English circulation areas, will enable small companies to create TV campaigns focused on local markets. Mr Highfield added: "Johnston Press has been focused on its vision to become a truly multimedia business over the last two years. This agreement with Sky is testament to the platform we have put in place."

Johnston had said at the end of 2013 its bankers had reset its covenants and a refinancing was under way. The shares, which started the year at 15.5p, climbed sharply over the next few weeks, remaining some 50% higher when in early March Johnston had to comment on market speculation that a rights issue was in prospect.

Five years ago the group's former chief executive John Fry revealed that its bankers, RBS and Lloyds prominent among them, had doubled the interest rate on its then £424m debt to 10%.