GUNNS Ltd is seeking to raise $430 million to repay company debt, primarily to meet an ANZ debt of $225 million as a result of its purchase of SA softwood company Auspine, with an entitlement offer to shareholders.

``The entitlement offer consists of an institutional entitlement offer of approximately $300 million and a retail entitlement offer of upto $130 million,'' the company said in a statement to the ASX today.

``The $300 million institutional entitlement offer will allow Gunns to repay the extended capital facility of $225 million that was used to partially finance the acquisition of Auspine and repay a portion of

existing company debt.''

The final offer price and entitlement ratio will be set by a bookbuild process to be conducted as part of the institutional entitlement offer.

Gunns completed its $335 million takeover of Auspine in February but has since had to close one of the operation's two Scottsdale mills with the loss of more than 120 jobs.

It said in yesterday's annual results statement that it expects the softwood operation to improve its performance once it is fully integrated into the company.

Executive chairman John Gay said directors believed that Gunns was well positioned to benefit from a positive operating outlook for its forestry products.

Last night the company reported a 16 per cent profit drop on increased revenues but strong demand for its hardwood division.

``The capital raising of up to approximately $430 million announced today will be used to recapitalise the company's balance sheet, providing Gunns with a robust balance sheet to support future growth,''

Mr Gay said.

If the capital raising is successful the company says its debt ratio will reduce to 37 per cent from the 51 per cent reported at June 30. The company's debt is $1.05 billion with net equity $993 million.

Institutional shareholders, dominated by superannuation funds, will have from next Monday to Wednesday to take up the offer by bidding for shares.

This process will determine the share price for retail shareholders who will be able to participate in the offer after the company issues a prospectus next Thursday.

Gunns has appointed Credit Suisse, J. P. Morgan and Macquarie Capital Advisers to manage the offer.

The company's shares, which closed at $1.675 on August 21, are on voluntary suspension until Wednesday, when the company will advise the ASX of the institutional take-up of the capital raising offer.