City & Business: Chunnel fog

The channel tunnel is full of mysteries. How did the tunnellers manage to meet in the middle? When will passenger services finally start? And how come the shares are actually worth anything?

Eurotunnel, by its own admission, doesn't expect to be cash-positive until 1998 and won't pay its first dividend till 2003. The most fantastic revenues will be needed just to meet interest payments on its pounds 8bn of borrowings. An emergency capital injection of pounds 1.6bn - the figure gets higher by the day - is needed by next month. The more pessimistic bankers were talking last week about a radical reconstruction.

Yet the extraordinary fact remains that the equity in the group is still worth a hefty pounds 2bn. The shares, originally issued at pounds 3.50 in 1987, were pounds 3.75 at Friday's close, albeit falling fast. Most UK institutions sold long ago. The share price appears to be underpinned by the French, who own about 75 per cent of the company now, and small investors who were attracted by the promised perks of free trips through the tunnel.

It's a close one to call. All is sound, fury and brinkmanship. But this time at least, Eurotunnel looks likely to struggle through. After more arm-twisting than at an all-in wrestling convention, the banks seem to have reluctantly agreed to put up pounds 700m of new debt. That should be just about enough to get a pounds 900m rights issue underwritten, if it is savagely discounted.

The alternative is unthinkable to the banks. Putting the boot into shareholders with a reconstruction now would make it impossible to get into their ribs either for next month's rights issue, or indeed at any time in the next five years, when Eurotunnel will continue to be desperately short of cash. Shareholders may well still lose their shirts. But not yet.