Digital services company, Hyro (ASX:HYO), has launched a three-for-one rights issue to raise around $4 million.
The company plans to use the proceeds to settle the $2.7 million worth of outstanding debts to the Australian Taxation Office, and a further $1.2 million in debt accrued by some now wound up subsidiaries.
Hyro's debt with the ATO - which as of June 2010 had accumulated to $11.4 million - caused it to swing to a $1.4 million FY10 loss, from a $4.1 million profit the year before.
Announcing the rights issue, Hyro said that erasing the debts should strengthen its balance sheet and removed perceived risk for potential and existing clients.
The $0.002 per share price of the rights issue represents a substantial discount on the company's closing price of $0.007 as of the end of last week.
HYO shares declined 14.29 per cent to $0.006 during Tuesday's trading following the announcement.
Hyro said it would seek to place any unsubscribed shares under a shortfall offer at the same price, and that its directors intended to take up their full entitlement.
Entitlement trading is set to end on 30 March, with the securities to be quoted on a deferred settlement basis the following day.
Hyro provides services to support online marketing, e-commerce and other ICT-based activities.