Eurotunnel debt crisis could lead to collapse

Warning to shareholders: 'If we don't reach agreement by the end of July then we never will'

IAN PHILLIP

Paris

and PETER RODGERS

The crisis at Eurotunnel escalated yesterday when Patrick Ponsolle, co- chairman, warned that the company could collapse if there were no breakthrough in talks with its creditor banks by the end of July.

He told 1,500 investors at a rowdy annual shareholders meeting in Paris: "If we don't reach an agreement by the end of July, then we never will."

If the company were put into receivership there were no precedents for working under conflicting French and British insolvency procedures. The debt talks were "complicated, long and extremely difficult".

Mr Ponsolle's comments are likely to alarm shareholders, after leaks in recent weeks appeared to show the beginning of progress in talks over restructuring the company's pounds 8bn debt.

Until recently, Mr Ponsolle had held out the possibility - though never a firm promise - of an announcement of a deal at the annual meeting.

Eurotunnel has been in crisis since it suspended payment of interest on its debts last September and Mr Ponsolle said that the interest incurred by the company was "excessive".

If it increased, the situation would be disastrous not only for the shareholders "but also for the banks who will never recover their money".

He said that an agreement had been reached in principle on a number of aspects of the negotiations, including a debt for equity swap and the reduction of the rate of interest on the original debt. But there remained a number of important sticking points.

These included the price of the conversion of the debt into shares, the date of the first dividend, and the payment profile afterwards.

But Eurotunnel gave no detail, angering shareholders, who shouted: "We don't give a damn. We want to know about the banks," after directors had given details of passenger and revenue figures earlier in the meeting.

Mr Ponsolle stressed that the shareholders would have to be patient. "I cannot get the company back on track in two years' time," he admitted, "and we have set an objective for a first dividend in 2004." Before the meeting began shareholders outside started banging their fists on tables and calling the company's directors "incapable and thieves".

Soothing music which greeted the shareholders' arrival at the Palais de Congres did nothing to defuse the atmosphere. Mr Ponsolle's opening words were met with boos and members of the assembly regularly tried to interrupt the proceedings. There were screaming matches between shareholders. After Mr Ponsolle's speech, Sophie L'Helias, the corporate governance consultant appointed by the French Investir magazine to represent 17,000 shareholders, accused the board of conflicts of interest.

She also brought into question directors' salaries and called for somebody outside the company to replace the British co-president, Sir Alistair Morton, who plans to retire once the negotiations with the banks are concluded.

Daniele Jann, a 54-year-old holder of 6,400 shares, said: "I just hope the banks leave us with a little money."

However, Mr Ponsolle tried to reassure them by announcing that his first priority was that "the shares remain in the hands of the present shareholders". He added that the banks contractual "right of substitution," which would allow them to scoop up all the shares in the company because of its inability to pay off the interest on its debt, was no longer valid and that "it only existed during the construction stage".

He said the French and British governments shared responsibility for the excessive construction and operating costs, and he highlighted the delay in their building of a high-speed line on the English side.