Eurotunnel extension may give governments a share in revenues

Eurotunnel may be forced to share some of its revenues with the British and French governments in return for being granted an extension to its Channel Tunnel concession.

This emerged yesterday as the Anglo-French consortium announced a reduction in bottom-line losses last year to pounds 685m and said that this summer's pounds 8.7bn debt refinancing could feature a rights issue allowing shareholders to prevent Eurotunnel's banks taking control of the tunnel.

Eurotunnel is pressing the two governments to extend the concession from 65 to 99 years to help it obtain approval for the refinancing from shareholders and its 220-strong banking syndicate.

But senior Eurotunnel executives believe that the British government in particular will want to exact a price for any extension. Eurotunnel's concession was extended in 1993 to run a further 10 years until 2052. In return the company agreed to drop a pounds 1bn-plus compensation claim against the two governments for the cost of safety improvements imposed on the project.

When the concession expires it will revert to the two governments for them to sell to another operator. By that time it will have become a highly valuable asset. One Eurotunnel source said it was likely the two governments would "want a share of the action".

Patrick Ponsolle, Eurotunnel's co-chairman, said yesterday that a significant extension to the concession was essential if it was to secure the support of its shareholders and banks for the restructuring.

He compared Eurotunnel's 65-year concession with the 999-year concession Eurostar has been given to operate the planned high-speed Channel Tunnel rail link and said that although another 10 years would be significant it would not be enough to satisfy shareholders.

He was speaking as Eurotunnel announced a bottom-line loss for last year of pounds 685m - down from pounds 925m in 1995 - and gave further details of how this summer's refinancing will affect its 720,000 shareholders. The restructuring will see pounds 4.7bn of Eurotunnel debt exchanged for equity and other forms of paper in a deal which could give the banks between 45.5 and 61 per cent of the company.

It emerged yesterday, however, that shareholders will in certain circumstances be entitled to apply for all the shares being offered to Eurotunnel's banks under the pounds 1bn debt-for-equity swap element of the refinancing, thus enabling them to keep control of the company.

However, for this to happen Eurotunnel's share price would need to rise by almost 50 per cent between now and the autumn when the swap is expected to take place. Under the complex restructuring package, existing shareholders will be entitled to apply for the new shares being swapped for debt only if the market price of Eurotunnel's existing shares is 85 per cent or more of the price of the new equity, which is expected to be priced at pounds 1.25-pounds 1.30. Mr Ponsolle urged shareholders yesterday to leave the shares to the banks unless there was a very substantial rise in their value.

Meanwhile, Eurotunnel announced plans for the full resumption of services this summer and enhancements to its Le Shuttle service and forecast that it would make an operating profit in 1997 for the first time.

The tunnel will re-open fully on 15 May with a full freight-shuttle service resuming in mid-June following last November's fire on board a lorry shuttle.

Comment, page 23

Countdown to restructuring

15 May: Tunnel to re-open fully after repair of fire-damaged section.

Late May: Prospectus issued to shareholders detailing pounds 8.7bn refinancing. Final proposals sent to banking syndicate.

Mid-June: Eurotunnel resumes full freight shuttle service.

10 July: Paris egm to obtain shareholder approval for restructuring.

Autumn: Debt restructuring approved. New shares issued to banks giving them 45.5% of equity.

December: Market share back to its pre-fire level.

Eurotunnel on course for operating profit in 1997.