Crisis deepens at Eurotunnel

RUSSELL HOTTEN

The City today gets further details of Eurotunnel's mounting financial crisis with the publication of half-year results forecast to be worse than expected.

After Eurotunnel's suspension of interest payments last month, some analysts now believe losses for the first half will be around pounds 50m more than first thought, at over pounds 400m.

Analysts are also hoping Eurotunnel will give an indication of the expected full-year losses, as the company's last forecast in May 1994 of about pounds 580m is completely out of date.

As well as looking for news of the company's legal action with the TML consortium and negotiations with the rail operators, any indication of traffic forecasts will be welcomed. Eurotunnel engaged in a fierce price war with the ferry companies this summer, and news about the operational outlook is crucial to a revised agreement with Eurotunnel's banks.

On 14 September Eurotunnel suspended interest payments on junior debt for up to 18 months. The firm said its bankers agreed to review their accords during that time, but analysts said Eurotunnel's next step could be to declare that 18 months is not long enough.

Many analysts believe the company is headed towards a debt-equity swap with its creditors, perhaps in the form of a convertible bond issue reserved for the banks.

Eurotunnel is also seeking to renegotiate the contracts with rail operators British Rail and SNCF, which use the tunnel for their Eurostar service. Yesterday Reuters news agency said the agreement with BR and SNCF gives Eurotunnel a fixed rate of around Fr100 per rail passenger using the tunnel.

A fixed rate means Eurotunnel does not benefit from any rail ticket price increases.

Also, the railways' policy of targeting premium passengers - such as business travellers - goes against Eurotunnel, which would rather shift larger numbers of people. It was thought that Eurotunnel was holding out for an increase of 60 per cent in the fixed rate it receives per passenger.

Eurotunnel also recently launched a fresh claim against the TML consortium of Anglo-French building contractors, but its chances of squeezing more money out of TML are slim.

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