(Adds latest Aryzta response)
ZURICH, Oct 23 (Reuters) - Aryzta's row with its largest shareholder, Cobas Asset Management, deepened on Tuesday as the investor said the Swiss-Irish baking company was painting "an unduly grim picture" of its financial situation to ram through a disputed capital hike.
In response, Aryza's board said Cobas's counter proposals were inadequate to solve the company's funding issues and too risky.
Last week, Aryzta stood by its plan to raise 800 million euros ($916 million) in new equity to meet its liquidity and financing needs, criticising Cobas' counterproposal to raise only half that amount as inadequate and risky.
Spain's Cobas, which has a 14.5 percent stake in the maker of McDonald's hamburger buns, favours a 400 million euro capital increase and the sale of non-core assets it contends could raise a further 250 million euros.
Cobas on Tuesday expressed disappointment, saying Aryzta Chief Executive Kevin Toland had not engaged shareholders as the company seeks to raise new money to cut debt and strengthen its balance sheet. The baking company is reeling from a failed expansion strategy that has led to hundreds of millions of euros in losses.
"We believe that the company now is drawing an unduly grim picture of the current situation with the sole intent to convince shareholders to support the excessively large and dilutive capital increase," Cobas said in a statement.
Aryzta late on Tuesday said it rejected Cobas's comments and urged shareholders to disregard Cobas's proposal.
"The board believes the Cobas proposal for a 400 million euro rights issue is inadequate, adds significant commercial and financial uncertainty and will not adequately address the company's needs," Aryzta said in a statement.
"The board also believes the capital raise needs to be a one-time transaction to repair the balance sheet," it added.
"Trying to fill the gap with unidentified disposals, raising of further debt and/or a staged capital raise, as suggested by Cobas, would add further management distraction and increase uncertainty."
Proxy adviser ISS had originally opposed the capital increase but on Friday changed course and said it now backed the plan. ($1 = 0.8731 euros) (Reporting by John Miller and John Revill; Editing by Sunil Nair and David Evans)