Glasgow-based telecoms group Thus has cut its debts and secured a cash injection through a deal with its majority shareholder, Scottish Power.

Thus, which owns Demon internet and provides call centre services, was created when Scottish Power spun off its telecoms operations two years ago.

The telecoms firm's debts to Scottish Power will be cancelled in a �275m debt-for-equity swap.

The news sent Thus shares spiralling upwards by 21% within 20 minutes of the London Stock Exchange's opening.

The share price has been under heavy pressure as investors fear the firm's funding shortfall would see it go out of business before becoming profitable.

Plugging the gap

As part of the same package, Thus said it has secured a new loan of �90m from Royal Bank of Scotland and others.

"We are more than fully funded now," said finance director John Maguire.

Analysts had estimated Thus faced a shortfall of �100m to finance itself up until 2003/2004, the target date for turning in a profit.

Thus said the refinancing will give it a stronger balance sheet than competing telecoms firms and enable it to fully fund its business plan, carrying it through until it reaches a positive cash flow.

Withdrawal

Under the deal with Scottish Power, Thus will issue new shares worth �275m at 48 pence per share.

Scottish Power has agreed to buy new shares up to �275m, though up to 20.6% of the new shares will be available to other Thus shareholders.

Thus will repay debts of about �260m to Scottish Power.

But while Scottish Power's shareholding in its offspring may increase in the short term, the utility has also expressed its future intention to ditch its stake.

The utility plans to either distribute the shares among its own shareholders or pay the cash equivalent to its smaller investors.

Confident of future

At the time of its first half figures in July, Thus said it was confident it would be earnings positive in the second half of the year.

Chief executive William Allan reiterated an upbeat view of the company's prospects today.

"Thus has produced five consecutive quarters of strong growth, meeting or exceeding market expectations".

"Our core infrastructure is complete, we have a strong management team and our services continue to be well received in our target markets," he said.

Thus shares were 11p higher at 63.5p by 0820 GMT.

But the shares slipped back by mid-morning amid general telecom sector gloom and closed the session mere half a penny higher at 53p.