LCR in 'contracts for Eurotunnel aid' bid

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The Independent Online

London and Continental Railways is pressing the Government for a role in the upcoming Crossrail project, in return for helping to bail out crippled Eurotunnel.

LCR, builder of the part of the Channel Tunnel Rail Link, is believed to have suggested to government officials, in the course of discussing the restructuring of Eurotunnel, that it would like a role in Crossrail. DoT officials however, have insisted that the two schemes have no relationship. Crossrail, a multibillion-pound scheme to build an underground rail link running from east to west London, has yet to be given the go-ahead by the Department for Transport.

LCR is a successful company but after it has completed the Channel Tunnel Rail Link and handed it over to Eurotunnel in 2007, it will want another big project to work on, analysts said. The company has eight shareholders, including Bechtel, the US engineering giant and Arup, the design consultancy.

Alistair Darling, the Secretary of State for Transport, is due to announce the Government's decision on Crossrail within the next few weeks. Most believe that the ambitious scheme will be given the green light.

Eurotunnel admitted earlier this month that it cannot manage its £6n of debt and has sought an "industry solution" to its difficulties. This would involve partners such as LCR helping it reduce its debt burden, in return for lower access charges in using the tunnel.

Eurotunnel would also need help from the British and French governments for the scheme. The tunnel is currently "overcapitalised and under-utilised" according to a spokesman for Eurotunnel. The solution would reduce the charges for using the channel crossing to levels that would attract more passenger and freight, thereby benefiting the allied industry players that are being asked for help.

There is considerable scepticism in the City that Eurotunnel will be able to pull off the "consensus" restructuring of the Cross-Channel. The alternative is a financial re-engineering that would involve some kind of debt-for-equity swap. According to Merrill Lynch, Eurotunnel's broker, the company needs £56m of additional operating cash flow to avoid the defensive option. That "cash flow gap is very substantial given Eurotunnel's modest operating cash flow", it said.

In a recent research note, Merrill Lynch said of Eurotunnel's preferred option of an industry deal: "It is probably the best chance[shareholders] have to salvage some value."