On Friday the shares closed at a new low of 288p, only 23p above the underwriting price of 265p. This has raised fears that a large portion of the huge share issue, which closes on Wednesday, could be unclaimed.
Immediately before the issue was priced however, Eurotunnel, co-chaired by Sir Alastair Morton, accused City institutions of selling shares that they did not have, partly in order to drive the price down. This would almost certainly have led the new shares to be offered more cheaply.
The selling has continued, driving the price down further. But those institutions that were also sub-underwriters to the issue were effectively covered against their bear positions. As the market price of Eurotunnel shares fell, the rights issue became less attractive, ensuring that the sub-underwriters would be left with more unwanted shares - which they can deliver to meet their selling obligations at a guaranteed profit.
And with some institutions rumoured to be very short of the shares they have promised to find for buyers, the net effect to Eurotunnel may be to save the rights issue. The French authorities are conducting an inquiry into the alleged short selling, following a complaint by the French Eurotunnel shareholders' association.
On the night of the pricing for the rights issue, Eurotunnel's broker, Warburg Securities, is believed to have told other advisers that it was well short of its target for finding sub-underwriters. Sources close to the issue say that Warburg found only pounds 150m of sub- underwriting for its pounds 400m part of the issue.
Swiss Bank Corporation took almost one-third of the underwriting of the entire issue and therefore could be exposed to a significant holding in Eurotunnel stock if the issue flops.
The irregularities attending the pounds 858m issue have raised calls for tighter regulation of these projects to avoid abuses by City professionals at the expense of outside investors.