What happened

Shares of Eros International (NYSE:EROS) declined sharply on Thursday, falling as much as 28.2%. As of 12:25 p.m. EDT, however, the stock was down about 21%.

The stock's decline comes after the Indian entertainment company announced it had entered a definitive agreement to raise capital as part of a direct offering with an institutional investor.

A chalkboard sketch of a chart showing a stock price declining.

Image source: Getty Images.

So what

Under the agreement, Eros will generate $25 million in gross proceeds from a direct offering of $27.5 million worth of senior convertible notes due in 2020 with an institutional investor.

"The Company intends to use the net proceeds for general corporate purposes," Eros said in a press release about the offering.

Some investors may be disappointed in Eros' need for such a significant capital raise. Highlighting how material the offering is, the value of the capital raise is equal to more than 10% of Eros' market capitalization.

Further, the equity-linked financing deal may come as a surprise to some investors, as Eros announced a $20 million share repurchase program just over three months ago, when management emphasized that it had a "strong financial position" and solid business fundamentals.

Now what

The offering is expected to close around Sept. 30, 2019, and is subject to "customary closing conditions," the company said.

Going forward, investors should look for evidence from management's ongoing commentary -- and in the company's underlying financials -- that Eros won't have to keep repeatedly raising capital. The company's $100 million equity-linked financing in December of 2017 is likely still fresh in investors' minds. Can Eros eventually become self-funding? Or will it need to regularly raise more capital?