Japan's Mazda Motor Group plans to raise €1.6 billion to shore up its finances and invest in a new plant in Mexico, financial sources said today - a bigger-than-expected fund raising that sent its shares tumbling 13 per cent.

The loss-making carmaker aims to raise 100 billion yen (€9.5 billion) through a public share offering and 70 billion yen through subordinated loans from banks, two sources with knowledge of the matter said.

Those loans would be provided by Sumitomo Mitsui Financial Group, the state-backed Development Bank of Japan and other banks, local media reported earlier. Mazda said in a statement that no official decisions had been made.

Battered by a strong yen, the nation's number five automaker is set to post its fourth straight annual net loss in the financial year to March. This month it predicted red ink of 100 billion yen, much worse than an earlier estimate of a 19 billion yen loss.

Mazda, which makes the Mazda2 subcompact and the Mazda3 compact car, is the most exposed among Japanese carmakers to currency swings, building about 70 per cent of its vehicles in Japan and exporting 90 per cent of those last year. Shares in Mazda fell 13 per cent to 140 yen, and it was the most actively traded stock by volume.

"It was sudden and I think share reaction of this size is to be expected for such a large surprising fund-raising," said Kenichi Hirano, operating officer at Tachibana Securities.

The Hiroshima-based carmaker has announced several plans to strengthen its overseas production bases and reduce its reliance on exports. In addition to plans to build a car factory in Mexico next year, it is considering a joint venture with Russian car maker Sollers to produce Mazda cars in Vladivostok.