Who would have thought that Australia’s most ethically challenged company, Gunns Ltd, would be forced into a desperate value-destroying capital raising?

After The AFR’s front page story today flagging a rights issue of up to $400 million, the full-blown crisis at Gunns became apparent this morning when the company requested this trading halt until at least next Monday.

Given that the stock has plummeted 30% since last week’s shock profit warning to a 7-year low of $1.67, this looks like the absolute worst time to be raising money.

How on earth can a company now capitalised at just $681 million and already saddled with more than $1 billion in debt, finance a $2 billion pulp mill? ANZ wants its bridging loan back and the $400 million-plus takeover of Auspine last year now looks like a disaster.

To raise $400 million, Gunns would probably have to a do a one for one at $1, but that would be highly dilutionary. John Gay’s own stake in the company is now only worth $13.77 million and does he have a spare $8 million to pump in?

Perpetual is the largest shareholder in Gunns with 52.53 million shares or 13.66% of the company. Having watched its stake plunge from $200 million last December to $87 million, does it really want to give this discredited board management team another $50 million to mishandle?

Given that Perpetual fund manager Matt Williams has been fulminating to The AFR in recent days about investor confidence at Orica, which recently raised $1 billion without providing any guidance, it would seem rather odd to continue backing the current management of Gunns.

Perpetual chairman Bob Savage mounted this defence of private communications with Gunns at last year’s AGM, but they’ve been more than happy to go public against the likes of Tabcorp and Orica in the past.

It’s time Perpetual stood up to be counted at Gunns and demanded that John Gay stand down, as he has clearly lost the confidence of investors. Australia’s most inarticulate public company CEO has also been unable to sell his pulp mill vision to potential backers despite the strong global demand for pulp.

There’s all this talk about Scandinavian backing for the pulp mill. Maybe these big global players should just build the thing themselves with Gunns as a wood supplier because Tasmania’s biggest company has blundered every step of the way and is now on the nose with Labor governments in Canberra and Hobart.

Alternatively, maybe Dick Pratt should make a takeover bid given his great track record in developing the Tumut pulp mill in NSW.

*Listen to this morning’s Gunns discussion with Tim Cox on ABC Tasmania.