Morton expects no breach of covenants

DELAYS in the opening of the Channel tunnel will cut Eurotunnel's revenues for the year to about pounds 34m, a quarter of the level predicted at the time of its pounds 850m rights issue earlier this year. The company said it would recoup much of that through cost control and lower project expenditure, leaving a cash shortfall of pounds 50m at the year-end.

Announcing its interim figures yesterday, Eurotunnel said it might not meet 'existing conditions' for accessing bank debt early next year, but denied that this meant the company would be in breach of its banking covenants. Sir Alastair Morton, chairman, said the banks had taken umbrage at the loss of revenue and would have to be persuaded to take a more optimistic view of Eurotunnel's prospects by next spring.

'The fact is that the banks have been going through all this since 1986/7 and they are not going to stop now, are they?' Sir Alastair said. 'There is no potential breach of covenant or event of default known to us.'

Eurotunnel would be covering its operating costs by the time it had to draw on its banking facilities, which would be needed only to cover interest charges.

Until next spring the company was living off the pounds 850m of new equity raised earlier this year, and there was no question of a further rights issue, Sir Alastair said. The financial way ahead lay with the banks and then with the company' warrant-holders.

'We have had a grim and hard- working nine months and we have not delivered on all the expectations in our prospectus,' he said. 'However, the present is beginning to look good and perhaps the future is at last arriving.'

Passenger services on Le Shuttle would begin on a fully commercial basis by the end of the year and would build up in time to attack the spring and summer market. The company had yet to apply for the final operating certificate for Le Shuttle to carry passengers. Tariffs would be announced a week before the launch.

Sir Alastair said Eurotunnel would not become involved in price wars with the ferry operators, P&O and Stena Sealink, as the company believed it would deliver a premium product. 'We do not seek to buy business briefly.'

Christopher Garnett, commercial director, said Eurotunnel would benefit from heavy marketing by Stena and P&O. In the year to 31 August, freight traffic on the Dover to Calais route grew by 24 per cent over the same period last year and the number of cars carried rose by 18 per cent. Eurotunnel's freight shuttle services were attracting an increasing number of companies, Mr Garnett said.

(Photograph and graph omitted) View from City Road, page 31