Bombardier Inc. fell the most in five months after announcing a plan to sell new shares in an effort to strengthen its balance sheet.

Taking advantage of a 31 per cent share gain this year through Monday, Bombardier said it would raise about C$638.4 million (US$492 million) with its first stock sale in three years. Canada’s largest aerospace company is offering the shares at a 4.5 per cent discount to the closing price Monday.

The deal furthers Bombardier’s efforts to shore up its finances, while diluting investors who finally had been enjoying a rally as Chief Executive Officer Alain Bellemare makes headway on a five-year turnaround plan. Bombardier has about $9.2 billion in long-term debt after investing heavily in two aircraft-development programs.

“If you buy into Bombardier, one of the risks you run as an investor is that there will be events like this one that take away from the earnings,” said David Tyerman, an analyst at Cormark Securities in Toronto. “This is another step to give themselves more breathing room. Even if the plan works, and so far it’s working, they will need a long time to fix the debt situation.”

The shares tumbled 8.3 per cent to C$3.65 at 10:07 a.m. in Toronto after sliding as much as 9.3 per cent for the biggest intraday decline since Sept. 27. That dropped the company’s market value to C$8.2 billion from C$8.95 billion at the close on Monday.

LOWER LEVERAGE 

Before the share sale plan, Bombardier had posted the second-biggest advance this year on Canada’s benchmark S&P/TSX Composite Index.

“The improvement in the valuation of Bombardier recently may have triggered an opportunity whereby the company begins to lower financial leverage earlier while at the same time de-risking the transformation plan in the immediate term,” Fadi Chamoun, a BMO Capital Markets analyst, said in a note to clients. The stock sale represents “an insurance policy that might be worth the costs given the unpredictable nature of the aerospace segment,” he said.

Bombardier, which also makes trains, will sell 168 million of its widely traded Class B shares at C$3.80 apiece, according to a statement Monday. The offering is expected to be completed by March 23.

Proceeds will be used to supplement working capital and for general corporate purposes, “thereby building further operational flexibility and re-equitizing the balance sheet,” the company said. The Montreal-based company has said it’s “well positioned” to break even on a cash-flow basis this year -- a major milestone for Bellemare’s turnaround plan.

CEO OPTIONS 

Options for Bellemare and his team include buying back the Caisse de Depot et Placement du Quebec’s minority stake in Bombardier’s rail unit after this year, Cai von Rumohr, a Cowen & Co. analyst, said in a note to clients. The Caisse, Canada’s No. 2 pension-fund manager, owns about 28.5 per cent of the unit.

Bombardier last sold stock in 2015 when it issued C$1.1 billion of Class B shares a few days after appointing Bellemare as CEO.

Credit Suisse Securities, National Bank Financial, UBS Securities Canada and TD Securities are leading the stock sale. The underwriters have an option to purchase another 25.2 million shares at any time up to 30 days after closing of the offering. That would increase total proceeds to C$734 million.