Market Report: Eurotunnel hit by fears of debt for equity swap

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The Independent Online
Short sellers attacked E urotunnel yesterday, sending shares in the Channel Tunnel operator 1p lower to a near all-time low of 24.75p. The short sellers are of the view that the company's future is in the hands of its creditors ­ who are owed more than £6bn ­ and that a debt for equity swap, like that seen at Marconi, is looking ever more likely.

Short sellers attacked E urotunnel yesterday, sending shares in the Channel Tunnel operator 1p lower to a near all-time low of 24.75p. The short sellers are of the view that the company's future is in the hands of its creditors ­ who are owed more than £6bn ­ and that a debt for equity swap, like that seen at Marconi, is looking ever more likely.

Such a scenario would dilute current shareholders greatly and, according to the bears of the stock, Eurotunnel shares should now trade at well below the 10p level to take account of this. At the close of business the Channel Tunnel operator was valued at just over £600m. "Should there be a debt for equity swap it is very unlikely that creditors will allow Eurotunnel's shareholders to retain anywhere near the £600m of value indicated by the company's current share price," said one of the bear raiders.

Last month, populist French politician and financial writer Nicolas Miguet led a revolt by Eurotunnel's retail investors which ousted the company's entire board and put in place a new team. Around two-thirds of the group's long-suffering shareholders are individual investors. The new team is yet to meet Eurotunnel's creditors. In the meantime, ratings agencies have been downgrade their stances on the company. At the start of this month, Standard and Poor's cut its rating on Eurotunnel's senior secured bank loan to "BBB-plus" from "A-minus" and expressed concerns about the group's deteriorating financial performance.

The FTSE 100 index ended the week on a negative note falling 12 points to 4,441.

Rio Tinto dropped 45p to 1,212p on rumours that its Grasberg copper and gold mine complex in Indonesia had been hit by a landslide. The rumours were denied by those who manage the project. They said that production had been briefly suspended following heavy rains but insisted that delivery schedules were unaffected.

The Grasberg complex is 12 per cent owned by Rio Tinto and is one of the world's largest copper and gold mines.

Some sizeable buy orders at the end of trading on Thursday got investors interested in SSL International, 9p better at 334p yesterday. Talk of a bid from Reckitt Benckiser is never far away from SSL these days, but yesterday there was also chatter that a management buyout could also be on the cards. SSL and Reckitt held takeover talks last year.

Numis Securities was surprised to see Westbury continue to lose ground. The house builder dropped 12.5p to 413p and has now fallen by over 20 per cent in the last six weeks. Westbury shares hit an all-time high of 506p in March as bid rumours circled the group. Even in the absence of a move on the company by one of its larger rivals, Numis believes that the stock is greatly undervalued. It notes that Westbury recently posted an impressive 27 per cent jump in annual profits and reported a rising net asset value.

Corus dropped 0.5p to 31.25p after the steel maker withdrew plans to issue a ¤500m bond, blaming deteriorating debt market conditions.

Evolution Beeson Gregory played down talk that Matalan chairman John Hargreaves wants to sell his 52 per cent stake in the discount retailer. Such a move would in effect put the company up for sale. "John Hargreaves may well sell at some stage, but he is not a seller now. He is a proud man and wants to see the business back on form first," said the broker. Matalan rose 1.75p to 176.5p

Generics retreated 1.13p to 912p amid concerns that the group's recent rights issue is suffering from a low take-up rate. Dealers worry that should this prove to be the case, it could leave a sizeable overhang of stock in the market. Bloomsbury Publishing gave up 6.5p to 252.5p on fears that growth at the company maybe running out of steam as the boost the company has enjoyed in recent years from the huge success of the Harry Potter books starts to wear off.

Another week has passed, and still no statement from Sibir Energy, regarding the status of its joint venture with Roman Abramovich's Sibneft oil giant. Sibir is believed to have had its 22.5 per cent stake in the venture, worth £100m, mysteriously diluted to less than 1 per cent, leaving the company seriously out of pocket. Sibir shares were suspended in April at 28p when the company got wind of the setback.

The lack of trading in Sibir shares, however, has not stopped stock market gossips. One story which has been doing the rounds says that Elena Baturina, the billionaire wife of Moscow mayor Yuri Luzhkov, holds a secret stake in Sibir. According to the talk, part of the 36 per cent holding registered as belonging to Russian entrepreneur Chalva Tchigirinski belongs to her. Sibir yesterday denied the rumour and said that Bennfield, the Isle of Man registered company via which Mr Tchigirinski holds his stake, is 100 per cent owned by him.

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