MADRID --Shares in Iberdrola SA (IBE.MC) plunged Wednesday as its announcement to increase its capital by EUR1.325 billion raises questions about the viability of its divestment program.

Iberdrola Wednesday said it will issue 250 million new ordinary shares, at a price of EUR5.30 each. That increases the company's capital by 4.9977%.

Shares in the Spanish electricity company fell 5.6% to EUR5.58 at 1042 GMT, dragging down the IBEX-35 index, which fell 1.7%.

The company late Tuesday had said it is raising capital to improve the ratio between its retained cash flow and its net debt, while trying to preserve its credit ratings.

The company, the world's biggest wind-power generator, at the end of the first quarter had a towering EUR31.1 billion in net debt, exceeding its market capitalization that stood at EUR27.6 billion Wednesday. Standard and Poor's has a long-term rating for Iberdrola of A-, Moody's of A3. However, the capital increase also could be related to difficulties Iberdrola is facing trying to carry out its EUR2.5 billion divestment plan, Espirito Santo analyst Fernando Garcia points out.

The company on June 2 said it sold a 10%-stake in wind turbine manufacturer Gamesa Corporacion Tecnologica SA (GAM.MC) for EUR391.7 million.

As the Gamesa participation previously had been considered a strategic stake by Iberdrola, the sale may already have been an indication that the company is finding it hard to sell other assets.

Iberdrola also has a 9.5% stake in Portuguese utility Energias de Portugal SA (EDP.LB), or EDP, that currently would be worth EUR916 million. Iberdrola had no comment on its planned asset sales.

The capital increase may also aim at diluting the holdings of its main shareholder Actividades de Construccion y Servicios SA (ACS.MC), according to Banesto analyst Antonio Cruz.

ACS's current 12.6% stake in Iberdrola is likely to go down to about 12% after the capital hike, Cruz said.

Iberdrola said it will carry out the capital increase through accelerated bookbuilding, without granting current shareholders such as ACS preferential subscription rights. The share sale is open to institutional and qualified investors and will be coordinated by JP Morgan Securities Ltd. and Merrill Lynch International.

ACS shares fell 2.7% to EUR35.51 at 1043 GMT. ACS had no comment.

ACS has repeatedly said it plans to boost its stake in Iberdrola to 20%, a move that now would be more pricey for the already heavily indebted construction company.

ACS so far has failed to secure a seat at Iberdrola's board of directors. Iberdrola blocked ACS's efforts to secure board representation on grounds that it controlled a competitor. ACS has recently sold its controlling stake in power company Union Fenosa SA (UNF.MC), and said in May it is studying legal action to back its board ambitions at Iberdrola.