The Channel tunnel operator, under pressure from its bankers and with summer trafffic below forecast, is investigating selling its massive tax losses to cut its own debts.
Eurotunnel and its advisers last night confirmed they were looking at participating in bids for the profitable rolling stock companies being sold off by British Rail.
Although details are not clear, Eurotunnel would in effect sell the rolling stock companies the right to its tax losses in return for cash that would be used to meet part of the group's huge interest payments. The company's debts are currently about pounds 8bn and meeting repayments in full appears to be beyond the company without some form of debt reduction programme.
Those companies bidding for the rolling stock say they have been approached by KPMG, Eurotunnel's auditors, with a tax planning scheme that envisages bringing some of Eurotunnel's tax losses forward, enabling the winning consortia to pay less tax in the early years. Eurotunnel yesterday confirmed that it was interested in being a member of one or more of the consortia, although its membership would be for tax purposes only.
"The company is clearly not in the position of being able to make a financial investment in any of these consortia," a source close to the company said. "If this works, clearly Eurotunnel would derive a proportion of the benefit," the source said. It is not clear whether any such scheme would gain the acceptance of the Inland Revenue.
Several of the bidders are said to be interested in pursuing Eurotunnel's proposal while others, thinking that it will not gain Inland Revenue approval, have turned it down.
Hambros, which is advising the Government on the sale of the rolling stock companies, said it could make no comment about its discussions with any of the potential bidders. Bids for the three companies that lease passenger coaches and trains to the rail networks, have to be in by 15 September. The Government hopes to raise up to pounds 2bn from the sale of the three companies - Angel Freight Contracts, Eversholt and Porterbrook.
Eurotunnel is currently in the middle of a new cash crisis, which has forced its advisers and bankers to try all routes to avoid the company being put into receivership.
On current projections the company is expected to run out of money to finance its operations on 31 October and brokers do not expect it to make a profit after interest costs before the beginning of the next century.
In the current financial year Eurotunnel's losses are expected to be anywhere between pounds 470m and pounds 750m and next year they are expected between pounds 290m and pounds 670m.
Eurotunnel will be able to offset such losses against its tax liability in future years but the company's tax advisers are desperately trying to find a way of using them to provide a way of reducing the company's huge debt bill now.
The company's revenue targets for this year are likely to be missed because of a slow start to its summer operations.