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UPDATE 4-Debenhams raises $526 mln stg to cut debt
* Shares placed at 80 pence, a 13 percent discount
* Profit growth has continued in past 12 weeks
* Renegotiates loan agreement terms
* CVC stake reduced
* Shares closed down 2.4 percent
(Adds CEO, analyst comments, detail, background, shares)
By Mark Potter
LONDON, June 4 (Reuters) - British department stores group Debenhams (DEB.L) raised 323 million pounds ($526 million) in a share sale to cut debt and said it was continuing to grow profit in a tough market.
Debenhams, which has been dogged by debt worries since returning to the stock market in 2006 after 2-1/2 lucrative years in private equity hands, said on Thursday it raised the money in a placing and open offer of new shares.
A total of 404 million new shares, equivalent to 31.4 percent of the enlarged company, were sold at 80 pence, a 13.3 percent discount to Wednesday's close.
The company also announced shareholder CVC had sold 51 million shares at the issue price, reducing its holding to 33.5 million shares.
"The proceeds of the capital raising will reduce net indebtedness, increase the company's available cash, improve financial ratios and increase financial flexibility," it said.
Debenhams also said it had negotiated a relaxation of the terms of its borrowings, which currently total about 900 million pounds against its market capitalisation of just over 800 million.
"There is substantial headroom that will finally and fully remove leverage off the agenda for Debenhams in our view," chief executive Rob Templeman told Reuters.
Debenhams, Britain's second-biggest department stores group behind John Lewis [JLP.UL] said former private equity owners TPG and CVC would enter the customary lock-up arrangements for the duration of the open offer.
Debenhams shares closed down 2.4 percent at 90 pence, having recovered from an 83.5 pence low.
Analysts said the stock was likely to be underpinned by growing profit and easing debt worries.
"Debenhams is clearly turning a page on the over-indebted business model which private equity firms had saddled it with, whilst management deserve credit for the path they have steered since the onset of the credit crisis," said Hargreaves Lansdown analyst Keith Bowman.
TPG and CVC refloated Debenhams at 195 pence a share in 2006, but the stock plunged 20.5 pence last November on fears a steep consumer downturn would lead the chain to breach debt agreements.
The stock has since bounced back after better-than-expected first-half results calmed investor nerves.
Debenhams said on Thursday sales at stores open at least a year fell 0.8 percent in the 12 weeks to May 23, but gross profit margin was up 90 basis points, helped by strong demand for its own-bought "Designers at Debenhams" range.
Templeman said profit growth for the 12-week period was at least as good as the 11 percent reported in the first half, leading analysts to upgrade forecasts.
Citi analysts said they expected consensus profit forecasts to rise 4 percent to 120 million pounds for 2008-09 and 9 percent to 125 million pounds for 2009-10.
Templeman said Debenhams was gaining market share, but remained cautious about the trading outlook.
"There is a lot more disposable income available for consumers, but until we get rid of the fear of unemployment, which hasn't gone away at all, I think we are still going to be in a challenging environment," he said.
Citi and Merrill Lynch were joint co-ordinators, sponsors and bookrunners for the share sale, while Lazard is joint sponsor and financial adviser. (Additional reporting by Daisy Ku and Jon Hopkins; Editing by Dan Lalor and Mike Nesbit) ($1 = 0.6144 pounds)
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