Debts threaten to overwhelm Eurotunnel at risk ... debts may over

Chairman forecasts make-or-break year as anxiety grows over funding from banks
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The Independent Online
BY PETER RODGERS

Business Editor

Eurotunnel warned yesterday that the £10.5bn project was at risk of being overwhelmed by its debts and might end up being taken over by its bankers.

After a series of delays and teething problems with new services, Sir Alastair Morton, the co-chairman, also apologised to shareholders for failing to meet revenue targets published when the company raised £1.5bn from banks and shareholders last May.

Sir Alastair said Eurotunnel had not anticipated the scale of its problems with safety regulations and equipment last summer and autumn, which he described as a nightmare. And he made clear that the summer of 1995 was make-or-break time.

He said: "Today's financial statement is not some kind of farewell note. We are not going bust. What we have done is to tell our shareholders the importance of the summer ahead. The game has not been totally played yet, so don't leap to conclusions, you will only rupture yourselves."

In what Sir Alastair admitted was a bid to raise the stakes in the next round of negotiations with banks over the project's finances, he said he saw himself as representing 720,000 shareholders against 220 banks.

He said the danger was that if Eurotunnel ran out of money and banks took it over from shareholders they would be gaining 58 years of cash revenues, during the whole of the period the tunnel operator's concession lasted. The outcome depended on whether the banks, which last week agreed to advance another £300m to cover the company's cash needs until October, would release more money in the autumn, when the next round of talks is scheduled.

This is required so that Eurotunnel can pay the interest on its debts - to the same group of banks - to keep itself afloat.

Likening the situation to international banks' negotiations with Peru and Mexico when the two countries ran short of funds, Sir Alastair said he thought the banks probably would want their interest paid.

Sir Alastair made clear that he hoped there would be political pressure on the banks to continue to support the company, which has 573,000 private shareholders in France and 132,000 in the UK. The shares slumped 24p to 218p after his statement.

He was reporting preliminary financial results for last year which were no worse than the City had expected, with a loss of £387m - only £5m more than forecast in a prospectus issued 11 months ago, despite lower income. But Sir Alastair and his co-chairman, Patrick Ponsolle, also made an unexpectedly alarmist statement to shareholders: "Eurotunnel is at risk. In 1995 we may succeed or fail. Our debt service costs may overwhelm us."

And the company's auditors said that on present projections of revenues and interest rates the money would run out in the second half of next year. Revenues are lower than planned and interest rates higher.

As a result, Eurotunnel has been asked to draw up new funding and debt servicing plans to present to the banks at their next formal review of the project in August and September.

Georges-Christian Chazot, Eurotunnel chief executive, said: "Our announcement today is not gloomy at all. It is a straightforward account of the situation to our shareholders.We hope to double Le Shuttle capacity by the summer and hope to take our share of the short-crossing Channel market from the current 20 per cent to 40 per cent by the end of the year."

Sir Alastair said that an arbitration claim by Eurotunnel against the French and British railways for a cash payment and higher tariffs could help to solve the financial problems. If successful, it could raise £400m cash and be worth £2.3bn in total. He expected to get an indication of progress this summer.

The company gave an upbeat account of the amount of cash it has in hand and said it would not need the £300m agreed by its bankers until June - adding that it expected to have £50m of the funds left by October.

The money is part of a £693m loan agreed at the time of last year's refinancing. But because Eurotunnel fell behind on its targets, the cash was held up until last week, when banks voted 93 per cent in favour of waiving covenants in the contracts.

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