Specialty women's wear retailer City Chic (ASX:CCX) is expected to make a highly dilutive capital raising that existing shareholders might balk at.

The small retailer, which had a market cap of $68 million at Monday's close of 30 cents a share, is reported to be looking to raise about $25 million from investors.

This implies a dilution of more than a third for existing shareholders.

The company has sold its American brand, Avenue, to a cashed-up offshore buyer. It paid more than $24 million for the online assets of Avenue pre-COVID in 2019.

The price and identity of the buyer will be confirmed in a statement expected from the company Wednesday on the price and terms of the issue.

The issue is being managed by Canaccord Genuity as lead manager.

The shares have been halted until next Monday to allow the issue to be sold, indicating it could be a tough sell.

City Chic shares are down 45% so far this year.

The company has a market value of just over $68 million and, as of December 31, had just $3.5 million in cash on hand.

An interesting aspect of the issue is whether Brett Blundy, who controls Best and Less and other retail assets such as Lovisa, will participate in the raising.

Blundy's Singapore-based BBFIT Investments purchased a combined total of 3.3 million shares on June 13, 14, and 17.

This boosted his stake from 9.9% to 11.3%. If he participates, he could contribute $2.75 million (which would allow him to avoid being diluted), but he has the resources to finance the entire issue and take control of the company.