MORE than £328 million was wiped off the market value of Aberdeen-based transport giant FirstGroup as its shares plunged by nearly a third after it asked shareholders for £615m to reduce its debt pile and turn around its bus and rail operations.

Long-standing chairman Martin Gilbert, who is also chief executive of Aberdeen Asset Management, announced he is standing down as FirstGroup pledged to direct much of a planned £1.6 billion investment programme towards its bus business. It also scrapped its final dividend and said it would not pay an interim dividend in 2014.

Chief executive Tim O'Toole said: "This is a decisive moment for the company and in one fell swoop we will remove the balance sheet impediments that have hung over the company for a number of years."

The company announced an 86.7% fall in pre-tax profit to £37.2m, in part due to falling bus subsidies, although its underlying profit of £172.4m, down 36.5% was in line with City expectations.

FirstGroup, which operates buses in cities including Aberdeen and Glasgow and runs the ScotRail franchise, denied it had any problems with debt covenants but said the fundraising ensured it would maintain its investment grade status.

Mr O'Toole said the need for a rights issue was caused by "a confluence of events" including his predecessor Sir Moir Lockhead's purchase of US company Laidlaw in 2007 that boosted its debt load and the downturn in the economy.

FirstGroup put part of the blame on the debacle surrounding the West Coast rail franchise, initially awarded to FirstGroup but later withdrawn due to flaws in the process.

Mr O'Toole said this had "changed the trajectory" of the planned repayment of the group's £2bn net debt burden. But the City still holds Mr O'Toole responsible for the timing of the rights issue. Its share price had declined by almost half between Mr O'Toole taking on the chief executive's position and the end of last week.

Douglas McNeill, investment director at stockbroker Charles Stanley, said: "The current management have been guilty of some bad judgement. It is good that they have come to grips with reality. It is a shame it took so long."

The company said the underwritten issue of 722.8 million shares at 85p each represented a discount of 39.5% to the theoretical ex-rights price – the market price the stock should have after the rights issue.

FirstGroup's shares closed down 68.2p at 155.6p, a 13-year low and a fifth of their peak of 815p in 2007. This left the company valued at £749.9m.

FirstGroup plans to use the proceeds of the rights issue to pay down its debt by £200m and support investment of £400m a year over the next four years. This will be targeted at its student bus arm in the US and its UK bus business, where its operations in Scotland and northern England have been hard-hit.

FirstGroup is to invest in new vehicles as it seeks to add passengers, having been criticised in recent years for fare rises. Mr O'Toole said: "You cannot just keep raising fairs and cutting mileage."

Earlier this year FirstGroup announced plans to boost frequencies on key routes in Glasgow and cut duplicate and minor services from May 26.

FirstGroup had considered selling off units, including the Greyhound coach division in the United States, but concluded that this would be too damaging to profits.

It had also thought about allowing its credit rating to slip to "junk" status but feared this would add £50m a year to its interest bill.

Mr Gilbert is leaving having been involved with FirstGroup for 27 years when it was Grampian Regional Transport before a buy-out by management.

Mr O'Toole denied Mr Gilbert's retirement from the board was due to investor concerns over his multiple interests which include a non-executive position at broadcaster BSkyB.

"Martin has been there every time I have turned to him," he said. The idea that he was overstretched is "completely unfounded", he added.