* Shares plunge as much as 21 pct after $1 bln rights issue plan
* Carrier swung to Q3 profit from yr-ago loss (Update share price, adds background)
By Al-Zaquan Amer Hamzah
KUALA LUMPUR, Nov 28 Shares in Malaysian Airline System Bhd (MAS) tumbled more than 20 percent to an all-time low on Wednesday as the national carrier's 3.1 billion ringgit ($1 billion) rights issue plan triggered fears of share dilution and uncertainty over the move.
Ahmad Jauhari, chief executive of Malaysia's national carrier, said in a statement to the stock exchange late on Tuesday that the rights issue was aimed at paying capital and debt expenses, without specifying the number of shares or the price for the issuance.
The share plunge came despite the carrier swinging to a profit of 37.1 million ringgit in the third quarter, reversing a loss of 477.6 million ringgit in the same quarter a year earlier. The struggling carrier posted a small operating profit of 4 million ringgit, ending six quarters of losses.
"The dilution on the company from the issue will be immense, there will be supreme volatility in the stock until there is more clarity on the exercise," an analyst from Maybank IB Research, who did not want to be identified, told Reuters.
Maybank has a 'buy' call and a target price of 1.20 ringgit for MAS, although the rating is under review pending further details on the rights issue.
MAS was down 17.8 percent at 83 sen as of 0254 GMT, after falling as much 20.8 percent earlier, its biggest single-day drop in about 14 years.
"There is no doubt the market is over-reacting, but this is what will happen until there is input from the management on the structure of the rights issue," said the analyst.
MAS also said it will reduce the par value of its shares to 90 sen from 1 ringgit in order to build a credit reserve of 8 billion ringgit. The company raised 2.7 billion ringgit in a rights issue in 2010.
The company saw its performance improve on lower fuel costs after it cut unprofitable routes, asserting that cost management remained a priority going forward.
"Revenue initiatives have started to gain traction in the market, and combined with the improved utilisation of the fleet and our manpower, we are beginning to see the results of our hard work," Jauhari said in a statement.
MAS shares are down about 22.5 percent since the beginning of the year. In February, the company reported its worst-ever loss of 2.5 billion ringgit for 2011, surprising analysts who had expected its restructuring to limit losses. (Reporting By Al-Zaquan Amer Hamzah and Anuradha Raghu; Editing by Stuart Grudgings and Muralikumar Anantharaman)