American shareholder backs troubled Redstone

Shares in Redstone Telecom, the troubled provider of telecoms services to small and medium-sized businesses, perked up yesterday after the company's single largest shareholder said it would support its emergency fund-raising plans.

Stephens Group of the US, which holds just over 10 per cent of Redstone's equity, said it would stand behind the company. Redstone stock closed up 30.8 per cent, or 1p, at 4.25p.

David Knight, legal counsel for Stephens Group, was quoted as saying: "My understanding is we're going to participate in the plan."

Redstone announced on Friday it was planning to launch an emergency cash call to raise £22m. It said the fund-raising was expected to be carried out through a placing and open offer of shares at a penny each although the exact terms were still being hammered out.

The 1p price of the planned fund-raising is a discount of almost 100 per cent to the stock's £9.49 high at the peak of the internet bubble last spring when the business was worth more than £1bn. Last night's close valued it at around £4.9m.

Redstone is due to unveil the full details of the plan tomorrow with its year ended 31 March results. Many analysts expect that announcement to contain a further round of management changes and expect the fracas to cost Graham Cove, Redstone's chief executive, his job. Since March, the company has lost four executives including John Carrington, non-executive chairman, Glyn Thomas, chief operating officer, and Bob Cushing, strategy and business development director. In early May, Alan Harrold, the company's finance director, also resigned.

Should Redstone's fund-raising plan fail, the company, which sponsors the Welsh national rugby team, will be the first major victim of the telecoms fallout.

Mountcashel, another major shareholder in the company, would not comment on its plans.

Redstone is thought to have spent the bulk of the cash it raised through its stock market flotation and from a rights issue last spring. By the end of April, it said it had just £14.7m cash left.

Redstone raised around £20m through its flotation in October 1999 and went on to stage a deeply discounted £122m rights issue last Spring.