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Cairn Energy is looking to raise an extra £113 million to help build pipelines to transport the vast oil reserves it has in India's Rajasthan region.
But the shares responded to the news with a fall of 92p to 1778p, and have now more than halved from their peak of 3681p last May. The Edinburgh-based oil-and-gas explorer is placing 6.5 million shares with institutional shareholders.
Merrill Lynch and RBS Hoare Govett began the bookbuilding yesterday and this morning placed the stock at 1775p.
Cairn says the proceeds will also be used to accelerate production at some fields in the region. At the last count, the company had estimated reserves of more than a billion barrels in Rajasthan.
Existing bank facilities, together with its own cash, are sufficient to fund completion of its core Mangala development plus a planned export pipeline.
The money will also be used to open up two new blocks in its big Rajasthan field, which goes live in the third quarter, as well as putting the money in place for Cairn's next big project - drilling in Greenland early next year.
Merrill Lynch and RBS Hoare Govett are believed to have charged around £2.5 million for their services. It is good news for Hoare Govett, which RBS acquired when it bought ABN Amro.
RBS Hoare Govett has this month been behind big fundraisings by HSBC, Wolseley, up 11p at 172.2p, CRH, William Hill, 1½p better at 232p, Premier Foods, ¼p lighter at 27½p, and Segro, up 9½p at 110½p - six deals in six days.
Meanwhile, Deutsche Bank has responded to the deal by cutting its target for Cairn from 2860p to 2770p.
The news from Cairn coincided with a big downgrade in Citigroup's outlook for the oil sector. The broker has cut its price forecast for Brent crude for 2009 from $65 a barrel to $48 and for 2010 from $75 to $55.
"Cost cyclicality will drive the economic threshold for the next generation of marginal projects lower, and we have moved from $85 to $65 a barrel from 2012. As a result, our earnings forecasts drop by an average 38% this year and 35% next year," it says.
Citigroup adds that the oil sector has been a strong performer while crude prices have fallen, reflecting the appetite for strong balance sheets and robust dividends.
But it worries that if oil breaks out of the $40-$50 range, in either direction, the risk-reward ratio will be skewed toward the downside.
Citi's top pick in the sector remains BG Group, unmoved on 999p, while Royal Dutch Shell, 6p easier at 1547p, and BP, ½p lighter at 450½p, are preferred to the likes of Total.
Meanwhile, Deutsche Bank has tweaked its target for Dana Petroleum, down 11p at 939½p, from 1335p to 1350p.
It has also raised Tullow Oil, 43p off at 770p, from 890p to 1010p, Venture Production, up 18p at 534p, from 425p to 460p, Premier Oil, 1½p cheaper at 785½p, from 1360p to 1375p and JKX Oil & Gas, 3½p off at 203p, from 275p to 365p.
Shares generally came off the boil following yesterday's Wall Street-inspired dead-cat bounce.
The FTSE 100 index fell 5.95 to 3709.28. This afternoon in New York the Dow extended yesterday's gains with a rise of 22.15 at 6948.64.
Back in London, HSBC came under the hammer, falling 21¼p to 377¾p, as hedge funds shorted the shares ahead of going ex-rights the bank's £12.5 billion rights issue at 254p tomorrow.
The shares lost 24% of their value in Hong Kong and London on Monday as hedge funds sold short their rights entitlement, looking to cover their positions by buying back the nil-paid.
Property developer Hammerson put on 12p to 235p after Credit Suisse raised its rating from neutral to outperform.
It expects Hammerson to sell its Les Trois Quartiers and its Bishops Square developments.
Hedge fund Fox Point Capital Management went short of 0.7% of Hammerson shares in the run-up to its rights issue.
Now Fox Point has begun shorting Land Securities, down 2½p at 354½p, which has already tapped shareholders for £755.7 million.
Credit Suisse has also cut its rating on the shares from outperform to underperform.
