UPDATE 1-Thai Air shares drop after news of big stock offer

* To sell up to 1 bln new shares

* Some of the shares are for shareholders, Finance Ministry

* Capital-raising to be completed in mid-2010

* Also plans 40 bln baht in bonds over 5 years

* Shares fall to eight-day low (Adds details)

By Manunphattr Dhanananphorn and Khettiya Jittapong

BANGKOK, March 12 (Reuters) - Thai Airways International PCL THAI.BK said on Friday it planned to sell up to 1 billion new shares to the public and shareholders, including the Finance Ministry, in an offer worth roughly $720 million at the current market price.

The move was aimed at strengthening the financial position of the national carrier, which is in the process of overhauling operations and restructuring management. [ID:nWEN1660]

The shares in the airline, valued at $1.28 billion on the Thai bourse, erased earlier gains and fell to an eight-day low after the announcement because of concerns about dilution and the offer price, which was not disclosed.

At 0810 GMT, the stock was down nearly 5 percent at 23.50 baht, after falling as low as 23.40 baht. It had gained 2.6 percent in morning trade. The overall Thai stock market was up 0.34 percent.

"It's not clear about the share allocation for existing shareholders. There are concerns that the price may be lower than market prices," said an analyst at Phillip Securities.

The state-owned airline will offer some of the new shares to the Finance Ministry so the ministry can maintain its stake at 51 percent, it said in a statement to the stock exchange.

"The share sale will be divided into two parts; the first is for existing shareholders including the Finance Ministry and the other will go to the public," President Piyasvasti Amranand told reporters.

Raj Tanta-Nanta, a vice-president for investor relations, told Reuters that financial advisers would decide later on the allocation of the new shares and offer price.

The airline's debt-to-equity ratio would be reduced to 2.0 after the share offer from 4.0 now, Piyasvasti said.

The planned capital-raising exercise, which was expected to be completed in the middle of this year, would raise its registered capital to about 27 billion baht from 17 billion.

The plan is subject to approval by shareholders on April 28.

The proceeds from the share sale will be used to repay debt, expand business and strengthen its capital to stay competitive in the long run, the airline said.

Earlier this year, Thai Air announced plans to raise up to 25 billion baht in a rights issues, part of a restructuring that could involve a bond issue and the rescheduling of short-term debt.

On Friday it said it planned to sell up to 40 billion baht ($1.23 billion) of bonds in the next five years.

Piyasvasti said it was due to repay 29 billion baht in debt this year. The airline planned to sell 11 billion baht of bonds to refinance the debt due in the third quarter, and seek loans to repay the rest.

The airline is in the process of restructuring after it made a huge loss in 2008 because of the global economic slowdown and airport closures caused by political protests. It reported a net profit of 7.34 billion baht for 2009.

The airline was expected to post a net profit of 6.5 billion baht in 2010, according to 12 analysts polled by Thomson Reuters I/B/E/S. ($1=32.65 Baht) (Additional Reporting by Viparat Jantraprap; Editing by Alan Raybould)