Comment: Sentiment unlikely to rescue Eurotunnel

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The Independent Online
It is a rum sort of rights issue when the existing shares have virtually to double in price before the new ones can be offered at any sort of discount. But then Eurotunnel is a rum sort of company. Barring a miracle or a lapse into insanity in the markets, this particular rights issue is one that Eurotunnel's long-suffering shareholders will not have to worry their heads about.

The arithmetic works like this. When Eurotunnel launches its pounds 8.7bn debt refinancing this summer it intends to swap about pounds 1bn of that debt for shares priced at around pounds 1.30. Since the shares are currently languishing at 71p it would take a rerating of truly heroic proportions to get them to the point where anyone would want to touch the new equity, save for Eurotunnel's bankers. They are bent over the proverbial barrel and have little choice but to take the shares or put the company into liquidation.

It is a fair bet, however, that somewhere among the 720,000 tortured souls who make up Eurotunnel's share register there will be the odd patriotic Englishman or crazed French dentist who insists on his inalienable right to throw more good money after bad into this hole in the ground.

It is just conceivable that sentiment will move Eurotunnel's way. But for that to happen it will have to get another 35 years on its concession and the Anglo-French Safety Authority will have to bless a freight shuttle design which is akin to a potential inferno on wheels.

But at least for once the interests of banks and shareholders are aligned. There is every incentive to get the share price up because the nearer the strike price gets to the market price, the more likely it is to tempt shareholders into the water. That would allow the banks to exchange their debt at par when it is trading in the secondary debt market at around 40 per cent of face value.

Fantasy? Almost certainly but that may not stop some shareholders taking the plunge even if the prospectus has a health warning printed on every page.