Eurotunnel turns up the heat in latest crisis talks
pounds 8bn debts: Governments accused of 'massive non-delivery of promi ses' on revenue from railway services
Monday 15 January 1996
Sir Alastair Morton, co-chairman of the troubled Channel-tunnel operator Eurotunnel, is set to intensify his campaign this week to press the UK Government into helping him secure a refinancing of the company's pounds 8bn of loans.
He wants the Government to join him and the group's bankers at the negotiating table in talks on how to help the company over its latest crisis.
One day last week, rumours that the troubled company could be about to be declared insolvent sparked a substantial fall in the company's share price.
Sir Alastair and the company's other co-chairman, Patrick Ponsolle, are set to write this week to their respective transport and finance ministers, asking them to renegotiate Eurotunnel's contracts with the two countries.
"It's clear that pain is going to have to be endured by the group's banks and its shareholders. We believe that the government should be taking an equal share of the pain, given the assurances it gave right at the start of the project," a source close to the company said yesterday.
Sir Alastair and Mr Ponsolle believe their case for getting the UK Government to sit at the negotiating table depends on promises made by the British Government at the outset of the project, backed by a letter sent to the group's main Japanese bank backers shortly after the contractors, TML, had been awarded the tender to build the tunnel in 1986.
The Thatcher letter is said to have contained a series of assurances and promises to the Japanese bankers which the Eurotunnel co-chairmen believe have not been kept to.
Although there was not an unambiguous guarantee of a government bail- out if the project went awry, many of the Japanese bankers are believed to have interpreted the Thatcher missive as a letter of comfort.
Eurotunnel believes the British Government has fulfilled fewer of its promises than its French counterpart. But the French government will be approached too.
"We are planning to ask the two governments to renegotiate and discuss how they will make up for the massive non-delivery of promises given by them in respect of income that would flow from the half of the tunnel capacity that they demanded in return for the tunnel concession when it was first granted," Sir Alastair said over the weekend.
Eurotunnel has three complaints. These cover the governments' rail-traffic forecasts, the implications for the tunnel of British Rail's fragmentation in the run-up to privatisation and the extension of duty-free sales on the cross-channel ferries. One possibility is that Eurotunnel may demand an increase in the pounds 200m-a-year minimum payment from the British, French and Belgian railways for the capacity which they demanded when the company was originally granted the concession.
Eurotunnel may also ask for an extension of the tunnel's 65-year concession, which would give its backers extra comfort should they decide to put up new money.
Eurotunnel suspended interest payments on its junior debt in September last year and since then it has been desperately trying to negotiate a financial restructuring with its bankers.
One likely option now being considered is a debt-for-equity swap which may see the banks ending up owning more than 50 per cent of the group's equity as well as its debt.
In one scenario - detailed in banking documents distributed to the company's backers in September - the banks, assuming shuttle revenues only 10 per cent lower than independent forecasters, would not envisage getting their money back and accrued interest on the project until 2052.
The banks leading the discussions over the restructuring are National Westminster, the Midland, Credit Lyonnais and Banque Nationale de Paris.
The banks are also being independently advised by Coopers and Lybrand, who have a team that specialises in financial restructurings.
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