JOHANNESBURG (Reuters) -South Africa's Pick n Pay will issue 252.2 million new shares at 15.86 rand per share in a rights offer to raise 4 billion rand ($221 million), it said on Thursday as the country's third biggest grocery group looks to reduce its debt.

Pick n Pay, which has 2,279 stores across South Africa and seven countries across Africa said the rights offer price represents a discount of about 32.48% to the theoretical ex-rights price calculated using Wednesday's closing price of 27.39 rand.

Shareholders will subscribe for the new shares in the ratio of 51.11 rights offer shares for every 100 Pick n Pay ordinary shares they currently hold.

The rights offer is fully underwritten by Absa Bank, Rand Merchant Bank and Standard Bank, the retailer said.

Pick n Pay has received a firm commitment from its controlling and founder shareholder Ackerman Investment Holdings to take up 1.011 billion rand of the offer.

New CEO Sean Summers is tasked with reviving a retail business that has been losing market share to bigger rivals Shoprite and others for more than a decade.

A deterioration in the performance of the group's core Pick n Pay supermarket business resulted in a substantial trading loss in the Pick n Pay division of 1.5 billion rand and an overall loss at group level of 3.2 billion rand in the 52 weeks ended Feb. 25.

At the same time its net debt escalated to 6.1 billion rand in the year, while the losses incurred also resulted in the need for a non-cash impairment of 2.8 billion rand.

These factors have put significant pressure on the group's liquidity and solvency, which have forced the board to announce a two-step recapitalisation plan, comprising of the rights issue and the proposed listing of its discount grocery retailer Boxer.

($1 = 18.1059 rand)

(Reporting by Nqobile Dludla; Editing by Susan Fenton)