The group said last October that it needed to raise a further pounds 1bn, split between a rights issue and bank borrowing. Sir Alastair Morton, co-chairman of Eurotunnel, said yesterday the issue 'won't be anywhere near pounds 750m', and suggested that it would be between pounds 500m and pounds 600m.
TML will allow the tunnel operator to increase the size of the rights issue by agreeing to underwrite pounds 75m of it, and will exercise its founder warrants, which will generate a further pounds 52m.
However, Richard Hannah, an analyst for UBS, said its size was worrying. 'It suggests the cash crisis is worse than we originally thought.'
Eurotunnel says the settlement will allow TML to keep all the money it has been paid so far and Eurotunnel will pay an additional pounds 70m- pounds 85m - the final amount depending on Eurotunnel's share price after the rights issue.
The main part of the agreement covers the final cost of fixed equipment - the electrical and mechanical systems in the tunnel. The original tender price, in 1987, was pounds 620m, but since 1991 TML has made it clear that it wanted much more to cover changes in specifications. These came both from Eurotunnel and from the French and British governments which, for example, insisted on more effective anti-fire devices following the Kings Cross disaster.
Both sides said they were happy with the deal, even though the amount to be paid by Eurotunnel - pounds 1.14bn at 1985 prices or pounds 1.57bn in today's money - was pounds 520m more than the original tender and pounds 810m less than TML's demand.
'We've paid pounds 100m more than we think they're entitled to, but it saves us a fortune in legal costs and means we won't have friction in the future,' Sir Alastair said.
Neville Simms, co-chairman of TML and chairman of Tarmac, said: 'It means our member companies will not have to increase the provisions they have already made.' He tacitly admitted that the original claim, of pounds 1.95bn, was the sort of overestimate common in the contracting industry. 'We don't ask for cost, we ask for entitlements; but we usually settle nearer to costs,' he said.
Eurotunnel shares fell 15p yesterday morning, and closed 10p down at 505p. Analysts said this was because the rights issue would be more than the pounds 500m previously flagged.
Eurotunnel said freight trains would be running before the official opening on 6 May, and passenger services, albeit with shorter trains than intended, would be introduced during the summer.
View from City Road, page 28Reuse content