Fear the key to future of company

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The Independent Online
Two big financial worries now face Eurotunnel - does the fire threaten attempts to reschedule the project's pounds 8.7bn debt mountain and how badly will it affect future revenues?

The fate of the tunnel operator hangs on the answer to the first. The future of the tunnel itself depends on the second.

To take revenues first, it is clear that there will be a marked impact in the short term, with capacity temporarily cut to a third of normal levels. Eurotunnel had been forecasting revenues of pounds 450m this year and stock market analysts had been even more bullish, pencilling in pounds 490m.

With one of the two running tunnels likely to be out of action for six to eight weeks, which will include the important Christmas period, and the remaining service subject to limitations, revenues will clearly suffer.

Eurotunnel was already expected to lose pounds 700m this year.

The longer-term impact is harder to gauge since it will depend crucially on the travelling public's sentiment.

Images of smouldering trains in undersea tunnels and accounts of choking travellers emerging from dense smoke and "blow-torch like heat" resonate. All Eurotunnel's soothing words may not be enough.

The financial community, has however, taken a remarkably sanguine view of the threat to the tunnel. "Frankly I don't regard the incident as a high priority," said one of Eurotunnel's senior bankers. "Sooner or later this was bound to happen but ask yourself how many ferries caught fire last year. Knee-jerk politics seems to be the vogue at the moment and I expect there will be a degree of that, but as an informed observer I do not think there will be any impact."

Jeff Summers, an analyst with the debt-trading agency Klesh and Co, which has been one of Eurotunnel's severest critics, said: "For the long term, provided this is a single incident then I doubt whether it will change the habits of the travelling public at all. If it were otherwise nobody would fly in aeroplanes or take ferry crossings.

"In the short term, however, Eurotunnel could not have picked a worse moment. There is a difficult round of financial restructuring to complete. A lot of banks will take the view that this incident will lead to a lower revenues and high bottom-line losses and that will affect sentiment."

Under the financial restructuring Eurotunnel is proposing to give the banks a stake of between 45 and 61 per cent in the tunnel in exchange for them writing off or converting pounds 4.7bn of the pounds 8.7bn they are owed.

Mr Summers doubts whether the incident will be enough to stop bankers from voting the deal through in the new year. But he is concerned about what would happen if Eurotunnel were forced to redesign its fleet of freight shuttles. "If that happened it would reduce the number of lorries it could carry and greatly increase the loading times. At one extreme that could be very damaging."

Business Comment, page 25

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