Eurotunnel anger as DoT seeks bigger profit share

Eurotunnel warned that a row with the UK and French governments over proposals to extend its licence to operate the Channel Tunnel could hamper the approval of its pounds 9bn refinancing deal.
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With a week left before the deadline for Eurotunnel's 174 banks to approve the debt restructuring package, the UK Department of Transport has raised the stakes in negotiations to lengthen its operating concession. The provisional agreement in July, which would extend the licence from 65 to 99 years, to 2086, was crucial in persuading shareholders to vote in favour of the complex debt-for-equity swap, which could see their stake in the company reduced to 40 per cent.

Patrick Ponsolle, the French co-chairman of Eurotunnel, said he had assumed the negotiations would be "fairly simple" and non-contentious, but the two governments were now seeking a bigger share of the company's profits during the extension period than the 25 per cent previously indicated. The DoT said it was "keen to improve" on the deal. "There have to be some benefits to the UK government and French government," said a spokeswoman.

Mr Ponsolle warned that Eurotunnel risked creating a false market in its shares if the restructuring plan was approved before the final deal on the operating licence. "We would have a substantial problem understanding how such a final agreement could substantially depart from what was indicated last spring," he said.

Georges Berlioz, the lawyer acting for one of the shareholders' action groups, said investors were likely to widen an existing legal claim in France against the refinancing package. "We are certainly reconsidering the position on the grounds that the information given to shareholders before the vote was misleading."

Jeff Summers, an analyst from debt traders Klesch & Co, said the DoT's demand for greater freight traffic through the tunnel was likely to influence the banks. "The logic of the DoT is commercial suicide for Eurotunnel. It suggests lowering charges for freight and that's the last thing they want."

Eurotunnel yesterday unveiled losses of pounds 323m for the first half of the year, down from pounds 372m a year ago, on revenues of pounds 230m, a rise of 12 per cent after adjusting for the surge in the value of sterling. It said it expected to make operating profits this year at least as big as the pounds 54m indicated in its most recent prospectus.