* Institutional shareholders took up 79 pct of entitlements
* Company unlikely to be out of the woods - analysts
* Shares plunge 36 pct, below offer price (Recasts, adds analyst comments)
By Sonali Paul
MELBOURNE, Sept 18 (Reuters) - Australian iron ore miner Arrium Ltd raised A$465 million ($416 million) in a steeply discounted share sale that saw institutional investors take up only 79 percent of entitlements, sending its stock price plummeting.
The miner and steel maker said on Thursday the sale to institutions, part of an effort to raise A$754 million, was completed at A$0.48, the minimum price it was seeking, which was a 26 percent discount to its last trade.
The fund raising through an entitlement offer to all shareholders and a placement to institutions, which together will more than double its share base, is aimed at helping it cope with a slump in iron ore prices.
The stock plunged 36 percent to a record low of A$0.42 after it resumed trading on Thursday, with analysts saying Arrium would likely continue to burn cash as iron ore prices and the steel market were unlikely to improve much.
"(The raising) was very dilutive to shareholders, but at the same time it's not enough to fully resolve their debt overhang," said Scott Hudson, an analyst at CLSA.
Shares that were not taken up by institutional investors will be offered as part of a sale to its retail shareholders. The whole sale is being underwritten by UBS, so no matter the outcome, Arrium will raise the full A$754 million.
Arrium, which was the target of a takeover offer led by South Korean steel giant POSCO two years ago, did not identify who took up shares in the A$98 million placement to institutions who were not already shareholders. (1 US dollar = 1.1188 Australian dollar) (Reporting by Sonali Paul; Editing by Stephen Coates and Edwina Gibbs)