Redstone Telecom unveiled its rescue plan yesterday which should ensure the troubled telecoms company survives for at least another 12 months.
Graham Cove, the chief executive, resigned from the board "following differences over the company's future direction". He is being replaced by Ian Brown, the company's chief operating officer.
Redstone Telecom is raising up to £25.3m, net of expenses, through a placing and open offer of up to 2.7 billion shares at 1p each. The open offer is being carried out on the basis of seven shares for every two held. Redstone's shares yesterday dropped 41 per cent to 2.5p.
Redstone, which admitted to weak internal controls and reporting systems, said it believed the new money and existing facilities would give it "sufficient working capital for its present requirements, that is, for at least 12 months from the date of the prospectus".
Peel Hunt, the company's broker, has already placed 2.25 billion shares with existing investors, securing Redstone £22.5m. Mr Brown, Andrew Walsh, Redstone's finance director, and Stephens Group, which owns just over 10 per cent of Redstone, have agreed to subscribe for 502.2 million placing shares.
Mr Brown said he believed the exercise "secured a future" for the company and hoped the announcement would put an end to speculation about the business. "We've got the funding. While there is a lot of work to be done, Redstone is in a better position than it has been for a couple of months," he said.
To tide the company over until the new money comes in, Redstone has secured a bridge financing facility of up to £2m financed by three lenders including Stephens Group.
The company, which is planning to change its name to Redstone, said that since the end of March its trading had been "adversely affected" by the uncertainty over its financial situation. However, it believed this would stabilise once the fundraising exercise was out of the way.
In the year ended 31 March, Redstone Telecom recorded a pre-tax loss, including exceptional items, of £101.8m compared with a loss of £10.4m the year before. Sales were £82.2m up from £33.4m.