View from City Road: Step nearer the abyss for Eurotunnel

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The Independent Online
How much more bad news can Eurotunnel take? Crisis is such a regular occurrence at this debt-laden black hole of a company that it becomes hard to tell one from another; they blur in a way that makes them almost indistinguishable from each other. Eurotunnel is just one big, never-ending crisis.

Most of the time the company tries to gloss over the bad news by pretending it's not really news at all. Crisis - what crisis? - is the constant refrain of its hardened public relations team. Oh no, that's all well-known and has been for ages, they say - an old damage-limitation trick that Eurotunnel employs on a grand scale in an attempt to mitigate the constant outpouring of disappointments and letdowns.

Forget all the public relations fog this time. The present twist is about as bad as they come. Not even Eurotunnel, though it is trying hard, can cover up for this one. On the Richter scale of Eurotunnel crises, this must rate a 10.

Negotiations on the latest refinancing has brought the company about as close to the brink as it is possible to get without actually falling off - closer than ever before, despite the fact that the tunnel is now built. Make no mistake about it, this time around it really is touch and go.

New revenue estimates released yesterday show a pounds 200m shortfall in the first three years and a delay in dividends to at least 2003. But the situation is actually much worse. The level of working capital required for start- up is a great deal higher than anyone expected. As this column has been warning all along, a much bigger rescue rights issue is needed than previously admitted to. It now transpires, contrary to what was being said just a few weeks ago, that Eurotunnel needs an pounds 800m-plus cash call to survive.

On top of that, an additional pounds 700m of debt finance is required; the banks refused more. As last night's deadline came and went, bankers were still a long way short of target, many resisting hard. Every pounds 1 of missing bank finance will have to be plugged by the equity market to avoid liquidation. As seasoned City observers are saying, there's a limit to how much equity players will take. If bankers put up only pounds 500m, is it really credible to ask shareholders for pounds 1bn? Of course not. In the event of liquidation it is they who are first in the firing line.

So what's the end game? Bankers will have to cough up. If they don't, it's curtains for Eurotunnel, or a much more serious refinancing involving deferred interest and possibly even debt for equity swaps. Shareholders are not going to meet the shortfall this time. It might be the end, anyway. All things are possible, but raising even pounds 800m is a tall order.