Taylor Woodrow hits back at Eurotunnel Eurotunnel

The dispute between Eurotunnel and its contractors flared up again yesterday as Colin Parsons, chairman of Taylor Woodrow, lashed out at renewed threats of legal action by the tunnel operator against Trans Manche Link, the contractors' consortium.

"This is a ridiculous way to finish a major infrastructure project," said Mr Parsons, who heads one of the five contractors that make up TML.

He was responding to last week's suggestion by Eurotunnel co-chairman Patrick Ponsolle that the group was ready to sue the consortium for failing to supply sufficiently reliable equipment.

"This is a sort of Bosnian settlement to a British problem." He said any claim would be vigorously resisted and that Taylor had decided not to write back pounds 5m of the pounds 20m provision previously made against the Channel Tunnel project.

Mr Parsons said given that the project was handed over by the contractors two years ago, tests were completed to the satisfaction of Eurotunnel earlier this year and performance bonds were released in June the threat smacked of desperation by management.

The renewed hostilities with the contractors came as the impact of Eurotunnel's problems on UK banks emerged yesterday with publication of reliable figures on their exposure to the project.

Reports in Paris, confirmed as broadly correct by banking sources in the UK, said that three British banks had loaned about Fr5bn (pounds 660m) to Eurotunnel.

NatWest, the lead bank, had an exposure of about pounds 277m, Midland pounds 250m, and Barclays more than pounds 130m, making the Channel projects possibly the largest single loans on the banks' books.

With Eurotunnel's decision last week to suspend interest payments on junior debt for 18 months, all three are likely to see a sizeable impact on profits. However, not all the exposure is in junior debt. Midland, for example, is believed to have pounds 210m in junior and pounds 40m in senior debt.

Analysts believe the banks will have to provide for the exposure this year. One estimate is that the three banks may be forced to make combined provisions as a result of Eurotunnel's default of pounds 200m-pounds 250m this year, and face a cut in profits of between 5 and 7 per cent.

The position of French banks is no better. Credit Lyonnais and Banque Nationale de Paris reportedly have exposure of Fr2.5bn (pounds 59bn) while Credit National and Credit Agricole are among those with loans of Fr1bn or more.