* Lupatech shares down 20 pct, bond prices tumble
* Raising cash to confront "concerns about solvency"
* Company cites support from shareholders BNDES, Petros
By Brad Haynes and Jeb Blount
SAO PAULO/RIO DE JANEIRO, Nov 23 (Reuters) - Shares of Lupatech , one of Brazil's biggest oil industry suppliers, plunged on Wednesday as the company tried to sell assets to meet looming debt payments.
"Although our financial situation in the third quarter has generated concerns about the solvency of the company, we are working hard to balance our capital structure and strengthen our cash position in the short term," Lupatech said in a security filing.
Lupatech shares lost a fifth of their value on Wednesday, their biggest drop in more than two years.
The company's cash crunch comes at a moment of heightened capital-market risk. Banks and investors are cutting lending in an effort to protect themselves from potential losses that could result from sovereign debt-defaults in Europe.
Lupatech is looking to sell auto-industry assets including parts maker Steelinject, which serves as collateral for $275 million of perpetual bonds issued in 2007. The company said it asked bondholders for permission to sell Steelinject, which accounts for less than 1 percent of Lupatech's total assets.
Lupatech 9.875 percent perpetual bonds fell 7.88 points to 36.72 percent of face value bid on Monday according to Thomson Reuters pricing. The yield, a proxy for the company's long-term borrowing costs, jumped to 26.88 percent. A year ago the yield was about 9.5 percent.
Lupatech's short-term debt, consisting of obligations due in the coming 12 months, grew to 313 million reais ($168 million) at the end of September, 74 percent more than three months earlier.
Of that short-term debt, 67 million reais matures by the end of the year. Lupatech had less than 31 million reais in cash and cash equivalents at the end of September.
Lupatech said in its third-quarter earnings statement that it was contracting a four-year financing line worth 60 million reais from major shareholder Petros, the pension fund for employees of state-controlled oil giant Petrobras .
"The company has the full support of its shareholders, among them (state development bank) BNDES and Petros, in all the moves it has made to improve its capital structure," Lupatech said in a statement later on Wednesday.
OFFSHORE INVESTMENTS
Lupatech is one of several oil industry companies that have made big investments to prepare for a spending spree in the industry focused on deep-water discoveries that could make Brazil the world's No.3 producer by 2020.
Petrobras alone, which produces more than 90 pct of Brazil's crude, plans to spend $225 billion on expansion over the next five years to find new oil, build new refineries and expand output - the world's biggest corporate investment plan.
But Petrobras has struggled to increase output in recent years. Revenue has also suffered from government policies fixing gasoline and diesel prices, forcing the company to cut costs in some areas and push back spending in others.
Delays in expansion programs have hurt suppliers such as Lupatech, which took on debt to ramp up investments in anticipation of an offshore oil boom.
Now the company is working to restructure debt as a sovereign debt crisis in Europe is roiling capital markets and banks are paring back credit to shore up balance sheets.
Lupatech closed 20 percent lower at 4.65 reais on Wednesday, while Brazil's benchmark Bovespa stock index declined 1.6 percent. So far this year, Lupatec shares have lost 76 percent.
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