UPDATE 2-Johnston plans rights issue after advertising hit

(Adds reaction, updates shares)

By Kate Holton

LONDON, May 14 (Reuters) - British regional newspaper firm Johnston Press (JPR.L: Quote, Profile, Research) plans to raise 212 million pounds ($412 million) through a deeply discounted rights issue to prevent it breaching debt covenants following a downturn in advertising.

Malaysian investment firm Usaha Tegas will also take a 20 percent stake in the company, through a share subscription and the acquisition of a further 10 percent of Johnston Press from the group's family trusts.

The news sent shares in the Scotsman newspaper owner down 10.9 percent to 121 pence by 0749 GMT on Wednesday.

On a like-for-like basis, advertising revenues were down 7.1 percent for the 17 weeks to April 26 on last year, due to declines in advertising on property, employment and motoring. This compared to a decline of 4.2 percent for the first 8 weeks of the year.

The group said it planned to raise the money through the issue of approximately 320 million new ordinary shares at a price of 53 pence per share, representing a 61 percent discount to the closing price on Tuesday.

"Given the recent reduction in consumer confidence, and deteriorating economic forecasts, the Board believes that the prudent action is to raise equity capital in order to reduce debt," the group said.

"Given the more challenging environment, the group is working hard on managing its cost base and, providing there is no further deterioration in the advertising environment, expects to deliver a satisfactory result for 2008 in very difficult circumstances."