Share slide may undermine Eurotunnel rights issue

EUROTUNNEL'S room for manoeuvre on its pounds 850m rights issue all but disappeared last night as the share price slumped another 20p to 355p.

If the share price falls any further, it will not be able to raise the full pounds 850m because there is a limit on the number of new shares it may issue.

Eurotunnel has permission from shareholders to issue up to 342 million new shares, after an increase of 150 million was approved last week.

If the company is forced to accept a discount of 30 per cent demanded by many institutions, it would mean an underwriting price of no more than 250p if the shares stayed at yesterday's levels. At that price, Eurotunnel would have to issue the maximum number of shares it is allowed in order to reach its target amount.

Any further fall in its share price would force a narrower discount or a decision to raise a smaller amount of equity capital.

Brinkmanship over the size of the discount is part of the usual bargaining process before an underwriting. But if the institutions overplay their hand, they could undermine Eurotunnel's attempt to reach its financing target, especially if the price weakens further. The share price has already fallen 18 per cent in 10 days.

The high discount is being demanded by institutions because of the uncertainty generated by Eurotunnel's rapidly increasing cash needs, with the rights issue now about 40 per cent bigger than the company admitted six weeks ago.

The price fall complicated the company's ambitious capital-raising exercise as its advisers prepared to begin the underwriting, after weeks of sounding out institutions in Britain and France. Most Eurotunnel shares are now in French hands.