SMG chief Rob Woodward yesterday succeeded in convincing panicked shareholders that a proposed £95.1m rights issue that would pay off much of its debt was in their long-term interests.

SMG chief Rob Woodward yesterday succeeded in convincing panicked shareholders that a proposed £95.1m rights issue that would pay off much of its debt was in their long-term interests.

Shares in SMG dipped 20% at one point after investors were spooked by the company's announcement of a scheme that will see it issue two shares for every existing share at a price of 15p each, in order to raise funds to tackle its long-standing debt problems.

However, the City later warmed to the deal, which requires formal shareholder approval later this month, with the stock rebounding to a 7% gain on the day.

The company, which owns STV, is sitting on the best part of £130m of debt despite the recent sale of outdoor advertising company Primesight in October for which it received £52m.

Repaying the debt would save SMG from the prospect of paying crippling bank charges of £20m next year and would cut its borrowings to around £40m, which it should be able to refinance on normal banking terms.

The other benefit is that it should give the company some time to negotiate the sale of Virgin Radio, which has been written down to £85m on the company's books.

SMG's attempt to sell the division, which includes Virgin Radio as well as a number of Virgin-branded digital stations, has suffered from volatile equity markets, which made an initial public offering virtually impossible, and the potential break-up of media group Emap, which has distracted trade buyers.

Woodward, who is committed to a strategy focused on its core television operations in north and central Scotland, told The Herald that he now expected to sell the radio division in the first half of next year.

"As a board we were committed to addressing the balance sheet and reducing the onerous amount of debt and we have always said we would do that by the end of this year.

"We will continue to turn around the core of the business. We are now operating from a position of strength and will be able to sell the non-core businesses at the best possible price for our shareholders."

Woodward has promised to pass the net cash proceeds from the sale of Virgin Radio on to shareholders. SMG is also seeking to sell its Pearl & Dean cinema advertising business, although this has been written down to zero and is unlikely to garner the company much of a profit.

Woodward's move was welcomed by analysts.

Paul Richards, media analyst at Numis, said: "This is the right move under the circumstances. They were looking to sell or float Virgin Radio but the equity market for consumer-facing media stocks is very difficult, so an IPO would have been challenging and trade buyers have got the credit crunch to contend with, so a private equity deal was difficult too."

Jonathan Barrett, media analyst at Kaupthing Singer & Friedlander, said: "The one thing this company needed was its debt refinanced. The real problem with this company is that it has been looking over its shoulder at its debt for the past five or six years. They can now focus on the future."

The new rights issue is fully underwritten by Hoare Govett. However, it is conditional on the approval of shareholders at an extraordinary general meeting on November 23.

Shares in SMG closed at 30p last night, up from 28.5p the day before but well below their 12-month high of 72.5p.