Channel tunnel is a licence to print money

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The Independent Online
Yippee. Tahiti here we come. Sir Alastair Morton may find himself short of people to pick fights with in the South Pacific, where he intends to go to unwind after his Herculean efforts in rescuing the Channel tunnel from the abyss (again).

Never mind, he and Eurotunnel's shareholders can content themselves instead by reflecting on a job done, who knows, perhaps even well done.

We do not yet have the details of how Eurotunnel's pounds 8bn debt burden is being redistributed. As usual in cases like this, it will not be a pretty sight for shareholders, who began with such big promises and high hopes and now find themselves with an unpleasant case of dilution on the high seas.

But we do at least know that shareholders will still be afloat and left clutching more than just their free travel perks when the restructuring plan bobs to the surface in the next few days. Ever since he decided to stop making the loan repayments a year ago Sir Alastair has been repeating a couple of familiar adages: We're In This Together and No Gain Without Pain.

He has been around bankers long enough to know that if there is one thing that they hate, it is running businesses as opposed to telling others how to do it. And he has played his hand well. Moreover, pulling the plug on Eurotunnel would not have gained the banks a single extra penny of revenue while leaving them with 750,000 aggrieved shareholders to placate, many of them customers in another life.

The price at which their debt is likely to be swapped may not be as attractive as it could have been six months ago but it stands comparison well with the price at which Eurotunnel last issued equity two years ago.

What's more there are a series of carrots to give both sides the incentive to make the most of the tunnel. If Sir Alastair's successors can meet performance targets, they will probably keep control. The virtue is that the better they do the more likely they are to hang on and the bigger becomes the cashflow to service investors new and old.

It may have taken Eurotunnel the best part of a decade to get to the point where its finances are on an even keel, but one thing is certain. Now that they are, the Channel tunnel will increasingly become a licence to print money. Eurotunnel is already at the point where it is making operating profits after depreciation but before financing costs.

Once the ferries have consolidated and prices have hardened and Eurotunnel is shorn of the debt it could never service, the tunnel will be a lucrative proposition indeed.

Undoubtedly, there will be elements in the banking syndicate who are tempted to hold out in the hills in the hope of wringing a little more out of Eurotunnel shareholders. With a syndicate spread out across 225 lenders in 17 countries, it would be amazing if that were not the case.

They should bear in mind another adage: it ain't worth spoiling the ship for a ha'p'orth of tar.

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