* Plan would help with much needed funds as chip unit sale delayed
* 2.28 bln new shares issued at 10 pct discount to Friday's close
* Shares fall 5 pct in early afternoon trade (Recasts and writes through)
TOKYO, Nov 20 (Reuters) - Toshiba Corp's plan to raise some $5.4 billion through a sale of new shares will help it avoid a delisting, but will also see more 30 overseas investors, including activist funds, own 35 percent of the embattled conglomerate.
The move, decided at a board meeting on Sunday, will allow Toshiba to pay off billions of dollars in liabilities at its bankrupt U.S. nuclear power business, Westinghouse. That in turn gives it the funds to return to positive net worth by the end of the financial year in March, as an $18 billion sale of its prized memory chip unit is unlikely to close before then.
The issue of 2.28 billion new shares at 262.8 yen per share, a 10 percent discount to Friday's close, will result in a massive 54 percent dilution in earnings per share.
Toshiba's shares were, however, down just 5 percent in early afternoon trade as the delisting risk was removed and as the capital raising had been expected. The stock was last trading at 277 yen - a level above the sale price.
"Toshiba's fund raising news eliminates the risk of Toshiba being delisted so that part is positive," said Takatoshi Itoshima, chief portfolio manager at Commons Asset Management.
"What's also positive is that the fund raising will improve the company's financial health. There is an argument that the company will be left with nothing (without the chip business), but it's good that the company's capital will recover."
Third Point LLC, Oasis Management Company and Cerberus Capital Management were among the 60 investors listed. Singapore-based fund Effissimo Capital Management, established by former colleagues of Japan's best-known activist investor, Yoshiaki Murakami, will become the largest shareholder in Toshiba with an 11.34 percent stake.
Payments for the new investment are due to be completed on Dec. 5.
Toshiba also confirmed that it is looking at selling Westinghouse assets.
Sources told Reuters in September that Westinghouse is working with investment bank PJT Partners Inc on a sale process.
Private equity firms Blackstone Group LP and Apollo Global Management LLC have teamed up to bid for the business while Cerberus Capital Management LP was in talks with U.S. nuclear power plant component provider BWX Technologies Inc about submitting a joint bid, the sources said at the time.
Toshiba had initially planned to use funds from the sale of its chip unit to cover its Westinghouse liabilities, but a highly competitive and contentious auction process led to delays in deciding on the buyer and has meant that Toshiba may not obtain the necessary anti-trust clearance by the end of March.
The chip deal still faces legal challenges from its chip joint venture partner Western Digital, which argues no deal can proceed without its consent and has sought an injunction through an international arbitration court.
Toshiba is demanding that Western Digital drop the litigation as a condition over a coming round of a joint investment in Toshiba's new flash-memory chip production line in Yokkaichi, Japan.
The two companies held talks in the United States last week for settlements, but have yet to agree on details, sources familiar with the matter said. ($1 = 112.0400 yen) (Additional reporting by Ran Kim and Naomi Tajitsu in Tokyo and Miyoung Kim in Singapore; Editing by Edwina Gibbs)