UPDATE 2-Premier Inn owner Whitbread's $1.2 bln cash call knocks shares

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LONDON, May 21 (Reuters) - Shares in Premier Inn owner Whitbread Plc tumbled 16% on Thursday after it said it would seek 1.01 billion pounds ($1.2 billion) in fresh cash from shareholders to help weather the COVID-19 crisis.

The 278-year company said it would offer its owners one new share for every two existing shares in a fully-underwritten rights issue, aimed at bolstering its balance sheet and boosting investment while other budget-branded competitors struggle with the fallout of the pandemic.

The significant dilution for shareholders implied by the deal pushed its shares down 16% to 2,395 pence by 0920 GMT, making it the worst performer in the FTSE 100 blue-chip index on the day. Rival hotel operator IHG also fell by 4%.

The new shares will be offered at 1,500 pence per share, a 37.4% discount to the theoretical ex-rights price (TERP).

“While no shareholder likes to have to put their hands in their pockets there is a certain logic to be had with the raising of this extra cash,” said CMC Markets analyst Michael Hewson.

With British holidaymakers unable or unwilling to travel abroad, Whitbread has an opportunity to take advantage of a big increase in ‘staycations’, he said.

Whitbread, owner of brands such as Premier Inn, Beefeater, Brewers Fayre and Bar + Block, separately said its full year adjusted pretax profits dropped 8.2% and it had suspended its dividend as part of its cash conservation efforts.

The hospitality sector has been hit hard by the pandemic and is expected to implement strict health guidelines as governments ease lockdowns.

Whitbread, which had a market capitalisation of 3.829 billion pounds as of Wednesday’s close, expects its hotels and restaurants in the United Kingdom to remain closed or operate at low occupancy levels until September.

JP Morgan and Morgan Stanley are joint global coordinators on the offering.

($1 = 0.8201 pounds)

Reporting by Muvija M in Bengaluru and Abhinav Ramnarayan in London; Editing by Ramakrishnan M, Sinead Cruise and Emelia Sithole-Matarise