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Shares in Sanctuary fell more than 18 per cent on Monday as the struggling music group said it was considering financing its debt through equity fundraising.

The announcement comes as Sanctuary is understood to have used most of its £135m ($235m) loan facility with HBOS, although the company said it continued to enjoy the support of its bankers.

At the end of March, the company had net debt of £120m. That figure is understood to have grown since then.

Evolution Securities is trying to put together a placing rather than a rights issue or a debt-for-equity swap, but Sanctuary warned there was “no guarantee that it will succeed in raising further funds”.

If it succeeds in negotiating a placement, existing shareholders could be diluted if they do not participate. John de Mol’s Talpa Capital is Sanctuary’s largest shareholder with 19.5 per cent, followed by Goldman Sachs, Fidelity and the Capital Group.

The company, which acts for artists including Elton John, Joss Stone and Morrissey, said that it was working to publish its results for the year to September 30. It expects to “generate a loss at ebitda level before exceptional items such as restructuring costs and provisions”. It added it expected “substantial provisions and write-downs” of £130m to £170m.

Sanctuary overstretched itself by expanding in the US. It bought Music World Entertainment, a company led by Mathew Knowles, father of Beyoncé. Sanctuary on Monday said it was in “active discussions” over its music publishing and studios businesses.

The company has appointed headhunters to recruit a new non-executive chairman after Andy Taylor, its former executive chairman, agreed to split his roles.

It is also understood to be close to agreeing a management reshuffle, which will see a new finance director to replace Mike Miller, although Mr Miller is expected to remain on the board.

Shares in Sanctuary closed down 0.6p at 2.65p.

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