The shares slid 8p to 118p on news of the one-for-three share offer at 105p.
John Jackson, the chief executive appointed in October 1994 with a brief to rebuild the business, said the group's retail chain had a profitable future, despite the virtual disappearance of profits last year.
"This is the first time for several years Sketchley is ready to grow. The reason for the rights issue is that there are a number of investment projects with good short-term pay-backs."
Mr Jackson said the higher gearing was consistent with what the new management had said before. "Our view is that we can get better returns going to shareholders than the banks."
The stock market was braced for bad news from Sketchley after it issued a detailed profits warning in March as well as plans to sell 160 loss- making branches in its dry-cleaning and SupaSnaps photo chains.
In the event, pre-tax losses came in at pounds 3.5m for the year to March. Stripping out the pounds 7.5m cost of the closures, the underlying figure slumped from pounds 6.4m to pounds 4m, while gearing soared from 35 to 86 per cent during the period, partly as a result of stocks taken on to support new workwear and textile rental contracts.
Mr Jackson promised an end to the one-off exceptional items which have been a feature of the group's recent profit and loss accounts, saying the latest figure of pounds 7.5m "will be more than sufficient to refocus the retail side".
Sketchley has already spent pounds 2m of the pounds 6.5m cash cost of the closures, of which 130 have been completed to date, with the rest of the money going out over the next three years. The latest cuts will bring the total number of outlets to 550, which will eventually include 35 within Sainsbury's supermarkets.
Losses in the 160 under-performing branches came to around pounds 3m last year, dragging retail profits down from pounds 2.83m to just pounds 98,000. Mr Jackson said like-for-like dry cleaning sales in the remaining shops were up 5 per cent in the first three months of the current year, although the comparable period had been depressed by last year's hot summer.
August's decision to slash photo-processing charges by 25 per cent had resulted in a 30 per cent sales increase at SupaSnaps, Mr Jackson said, which has made up for the loss of margin on price.
The rights money will initially reduce pro forma gearing to 10 per cent, but that is expected to rise to between 30 and 40 per cent as the money is invested. Big new contracts on the workwear side like those for Jaguar and Sainsbury won last year involved investment of up to pounds 4m in stock, Sketchley said. The rental division saw profits rise from pounds 6.2m to pounds 6.89m last year and the aim is for it to contribute three-quarters of revenues within three years, up from 43 per cent now.