Eurotunnel to finance pounds 300m debt buyback with rights issue

EUROTUNNEL YESTERDAY raised hopes that it will start paying a dividend sooner than expected after unveiling plans for a rights issue to fund the buyback of more than pounds 300m of its outstanding debt.

The Channel Tunnel operator is spending pounds 143m to purchase debt with a face value of pounds 317m. The exercise will be financed through a one-for- seven rights issue of 250 million new shares at 65p each, raising a total of pounds 162m.

Eurotunnel said that together with earlier debt rescheduling and repurchasing moves this year, the latest initiative would reduce its debt mountain by pounds 709m and cut its annual interest bill by pounds 31m.

Richard Shirrefs, Eurotunnel's chief financial officer, said the move would potentially accelerate the company's ability to pay dividends by improving its cash flow and bringing forward the breakeven date.

Eurotunnel made an underlying loss of pounds 215m last year and, on current forecasts, is not scheduled to make a profit until 2005 or pay its first dividend until 2006.

Eurotunnel's total in- debtedness, including loan notes, currently stands at pounds 7.34bn and last year it paid a total of pounds 386m in interest charges.

The latest debt purchase will generate an exceptional profit this year of pounds 174m but Mr Shirrefs said this would only be an accounting profit and would not be factored in when executive pay bonuses are calculated.

The rights issue - the first from Eurotunnel for five years - has been fully underwritten by a syndicate of banks led by Dresdner Kleinwort Benson and CCF Charterhouse.

Although the share issue is being pitched at a 25 per cent discount to Eurotunnel's current price, its stock rose by more than 3 per cent to 90p on the news.

News of the latest debt purchase came as Eurotunnel confirmed that it is on course to submit proposals for a second Channel crossing to the British and French governments by the end of the year.

This is a requirement of its 99-year concession but Eurotunnel does not have to decide whether it actually wants to go ahead with another cross-Channel link until 2010, and the link itself does not have to be built until 2020, Mr Shirrefs said yesterday.

Eurotunnel would submit a range of options, from a second rail tunnel to a drive-though link or possibly a bridge crossing.

Although the proposals will include costings, Mr Shirrefs said that the figure of pounds 12bn being bandied about was "total rubbish".

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