May 12, 2009 / 6:07 PM / in 8 years

UPDATE 1-Sun Life to issue shares for dividend reinvestment

* Changes dividend reinvestment plan

* To issue new shares, rather than buy on open market (Adds details)

TORONTO, May 12 (Reuters) - Sun Life Financial Inc (SLF.TO), Canada’s No. 3 insurer, said on Tuesday it would start issuing new shares to investors participating in its dividend reinvestment plan rather than buy them in the open market.

The move, which will dilute the holdings of existing shareholders but also help the insurer raise funds, allows plan participants to purchase common shares from dividend income at a 2 percent discount to market price.

Until now, participants in the dividend reinvestment program had had shares acquired for them through the Toronto Stock Exchange at market price.

Sun Life said the changes will be effective starting with dividends payable on June 30, 2009. It said it may issue new shares at a discount up to 5 percent to the average market price but would discount at 2 percent until further notice.

Sun Life said last week it would issue up to C$200 million ($171 million) in preferred shares, tapping debt markets after announcing weaker than expected quarterly earnings.

All of Canada’s Big Six banks and several insurers have launched equity or note offerings this year to strengthen their balance sheets.

$1=$1.17 Canadian Reporting by Andrea Hopkins; editing by Peter Galloway

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