Outlook: Even the French will say 'non' to Eurotunnel

Symbian/Nokia; G7 gobbledygook
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Three things are certain in life. Death and taxes are two of them, but a third is that Eurotunnel will never be far away from its next financial crisis. It took two rescues on top of the initial round of bank and equity finance even to see the Channel Tunnel through to its completion, yet that too proved insufficient to put the company on a sound financial footing.

Eurotunnel was insolvent virtually from the day it began operating and in the subsequent refinancing the original share investors were all but diluted out of existence. Now there is a whole new generation of them nervously awaiting their fate ­ like their predecessors, lambs to the slaughter. It's hard to see what might save them.

Despite all the past restructurings of the past, the tunnel is still saddled with £6.4bn of debt and too few users to pay its way. Yesterday's reported £1.3bn loss was mainly down to asset impairment charges, but even at the operating level, the company continues to lose money and once you factor in interest on Eurotunnel's still mountainous debt pile, which becomes payable again soon under the terms of the last refinancing, Eurotunnel is again insolvent. Revenues, already flat, will be further undermined when current capacity usage agreements with the railways come to an end.

If all else fails, go cap in hand to the Government. Absolutely not, says the British Government, which points out that under the terms of the Channel Tunnel Treaty, it is in any case specifically banned from offering aid.

Oh go on, says Eurotunnel. One way would be to underwrite an issue of bonds, in much the same way that John Prescott did when he came to the rescue of the Channel Tunnel Rail Link. Another would be to allow Eurostar and SNCF, the state sponsored operators of rail services across the channel, to participate in a capital raising exercise.

In return Eurotunnel would cut usage charges which in time would generate more volume and eventually more revenue too. None of which makes it any easier to see why the Government would want to help by coming to the rescue of distressed debt and equity holders. This is not like British Energy, where the lights might have gone out had not the Government stepped into the breach. Whatever happens, the tunnel is bound to keep operating, given that it is already there. Even for the French, whose gut instincts might be to bail out this piece of grand engineering, the benefits of a rescue are far from obvious.

The end game is already clear. Debt holders will eventually take over and appoint new management, obliterating what equity Eurotunnel's (largely French) shareholders have left. Eurotunnel responds that any new management would still be faced with the same old problem of how to make the Channel Tunnel pay, but that obviously depends on how much of a haircut lenders are forced to take. At some level, the tunnel must be viable.

In total, some £25bn has been sunk into getting trains to operate between London, Paris and Brussels. The service works well, providing a much needed alternative to the airlines and ferries, but no one has yet been able make money out of it. As Eurotunnel chief executive Richard Shirrefs observed yesterday, the tunnel would never have been built had financiers realised how few would use it, or how much more than budget it would cost. But there it is, a marvel to behold, and thankfully it is the financiers who must bear the cost of their miscalculation, not the tax payer.


David Potter, the chairman of Psion, has already had to bury his pioneering business in palm computers, outgunned as he eventually was by rivals in the Far East and America. Now he's also having to say goodbye to Symbian, the attempt to produce an industry standard operating system for smart phones.

At least this time he's being paid to leave the kitchen, unlike with the palms, where he was forced to close at considerable cost to his bottom line. Nokia is paying up to £135.7m in three installments for Psion's 31 per cent stake in Symbian. Yet the reaction of the share price ­ down 32 per cent yesterday ­ gives some measure of the disappointment.

Symbian was Psion's great hope for the future, a software miracle that its cheerleaders said would eventually come to control most of the world's new generation of mobile phones, rather in the way Microsoft Windows dominates the operating system market for PCs. Early indications were good.

The number of handsets using Symbian has been rising exponentially, albeit from a tiny base, and the system seems to be thrashing its main Microsoft rival wherever the two go head to head. Analysts were at one stage talking excitedly of an eventual IPO valued in the billions.

The emergence last year of Nokia, the big daddy of the mobile phones world, as the biggest shareholder alongside Psion was always bound to create problems. Symbian was intended as an open operating system available to all handset manufacturers. Whether Nokia plans to continue with that strategy or not, other mobile phone manufacturers were always bound to be suspicious of its greater involvement. Mr Potter came to believe he had no option but to sell. Whatever Nokia's plans, its agenda has to be different from the independent one envisaged by Psion. One way or another, Symbian was destined to become Nokia's creature.

Mr Potter has no doubt done the right thing in deciding to channel his money into Teklogix instead, but there's no hiding the disappointment. Symbian was a made in Britain attempt to create a common industry standard in a cutting edge technology.

G7 gobbledegook

I've never been much good at nuance, and I've certainly always struggled to grasp the hidden meanings which other commentators manage to find in even the most anodyne of public policy statements. G7 communiqués are a case in point. To me they rarely seem to add up to anything at all, yet they are invariably portrayed as of absolutely gob-smacking importance.

This is because G7s are like most meetings of disagreeing participants. Everyone emerges with a completely different view of what was agreed and said. Briefings then follow, the journalists get together in a group, and though it's hard to make sensation out of an event as fundamentally dull as a G7, the most dramatic possible interpretation of the wording is agreed and reported.

There was something for everyone in the G7 communiqué released in Boca Raton this weekend. The Americans managed to emphasise the importance of "supply side structural policies that increase flexibility and raise productivity growth" while the Europeans and Japanese, cheered from the sidelines by the Chinese, managed to insert the contention that "excess volatility and disorderly movements in exchange rates is undesirable for economic growth".

Yet ultimately it didn't add up to a hill of beans. There was no reference to or even hint of co-ordinated intervention to halt the slide in the value of the dollar ­ that came from the spin-meisters afterwards and shouldn't be trusted. The statement that "we continue to monitor exchange markets closely and co-operate as appropriate", was word for word the same as that released after the previous G7 last September in Dubai. There has been no intervention from the US or Europe since then.

Nor is there any reason why the Americans should suddenly want to change tack and support the dollar. Right now, a weak dollar suits American policy makers just fine. Besides, there is really very little finance ministers can do about a currency realignment in full flood. Massive intervention by the Bank of Japan may have helped slow the appreciation of the yen against the dollar, but it hasn't succeeded in reversing it or even halting it. Unless the European Central Bank suffers a Damoclesian conversion, there is no possibility of intervention on that scale being applied to the euro/dollar exchange rate. The dollar has yet to hit bottom.