Debenhams shareholders warned they could be wiped out

Shares in struggling department store Debenhams have plunged by more than 50% after it announced the next step in a refinancing plan which could see stock holders including Mike Ashley wiped out.

Debenhams confirmed a report by Sky News that it is seeking a £200m funding lifeline from lenders as it tries to evade the clutches of Mr Ashley, its biggest shareholder.

It is now formally asking investors who hold debt in the company for changes needed to secure the funding, allowing it "to pursue restructuring options to secure the future of the business".

But it warned that "certain of these options - if they materialise - would result in no equity value for the company's current shareholders".

That restructuring would be likely to include a so-called debt-for-equity swap - in which lenders would take control of the company's shares in exchange for cutting its debt - or a pre-pack administration process.

It is the latest development in a tug of war over the beleaguered department store between its lenders and Sports Direct, controlled by billionaire Mr Ashley, which already holds 30% of the business.

The £200m financing plan follows an offer by Sports Direct to provide an unsecured loan of £150m in a deal which would boost its stake in the business to 35% and see Mr Ashley installed as chief executive.

Shares initially fell by more than 50% on Debenhams' announcement on Friday.

In response, Sports Direct said it had offered to buy Debenhams' Danish business Magasin du Nord for £100m to help boost its finances.

Later, the department stores shares partly recovered but were still trading 30% lower on the day.

They currently trade at around 2p, having lost almost their value since 2015 when they were worth 95p as the struggling business has faced mounting problems.

Debenhams is seeking refinancing to try to shore up its balance sheet so that it can continue trading for the rest of the year.

That is likely to be followed by a company voluntary arrangement to slash rents and close loss-making stores.

It has already earmarked just under 20 sites for closure early next year with dozens more also identified as future casualties - in a programme likely to result in thousands of redundancies.