Eurotunnel asks France for debt rescue

RUSSELL HOTTEN

Eurotunnel has asked the French government to rescue it from its cash crisis by providing financial guarantees to the 225 banks that backed the Channel Tunnel project.

Detailed talks have focused on whether Paris would secure a huge Eurotunnel bond issue for the bulk of its pounds 8bn of debts. The terms are thought to involve issuing a zero-interest coupon guaranteed for 10 years, followed by promises of security in return for staged interest payments over another 20 years.

The surprise news emerged as Sir Alastair Morton, the company's co-chairman, called for Stock Exchange inquiries in London and Paris into this week's erratic movement in Eurotunnel's share price. Sir Alastair revealed that a previous investigation into dealings by traders in Paris had been passed to the French police.

Eurotunnel shares in London closed up 7p at 84p yesterday.

News that Eurotunnel is discussing help with the French government will intensify divisions among the banks, which expect soon to hear the results of discussions between the company and agent banks about resolving the crisis. The 25 Japanese banks are thought to be resisting any immediate deal in the hope that the government might intervene.

Eurotunnel is also pressing the UK government for help but is believed to have made little headway. In Paris, however, the company has received a more sympathetic reception.

Patrick Ponsolle, the French co-chairman, said he had warned the Paris government that it faced a financial scandal if Eurotunnel's restructuring was not solved soon. "Eurotunnel's position is perceived differently in France. In the UK, you believe it is simply just an unfortunate problem for shareholders and bankers. In France, it is seen as a scandal because people were encouraged to invest by promises that Eurotunnel would be a success."

Mr Ponsolle declined to say whether the French government had agreed to help, or when it might intervene.

The talks are linked to an attempt by Eurotunnel to extend the concession under which ownership of the project reverts back to the two governments after 67 years. The concession still has 57 years to run, but Eurotunnel wants it extended to 99 years, which would be similar to other large projects. With a longer concession, Eurotunnel would have more scope to spread debt repayments to the banks.

Mr Ponsolle said: "I have told our government that they must recognise the problem that they face. Many things they promised have not happened. They have some responsibility."

Although he confirmed that he was talking about the state providing guarantees for a bond issue, he declined to be more specific. He believed that a Labour government might be more willing to come to Eurotunnel's assistance.

Last year, Eurotunnel shocked banks by suspending interest payments worth pounds 700m for 18 months. Mr Ponsolle accepted that any announcement of a government guarantee might coincide with the lifting of the interest standstill.

"But there is so much still to do. Absolutely nothing has been decided."

It is understood that Eurotunnel and the agent banks are negotiating an interest-or-equity swap to resolve the suspension of payments.

Yesterday, Sir Alastair launched a stinging attack on share traders and dealers in Eurotunnel debt, who he said were undermining the company share price.

On Tuesday Eurotunnel shares fell 7 per cent in London and 4 per cent in Paris on rumours that it was about to file for bankruptcy.

Sir Alastair said he would be writing this week to regulators in London and Paris calling for an investigation into all Eurotunnel share dealings this week.

"There are professional short-sellers out there who are deliberately driving down the price."

Eurotunnel released figures yesterday to show how much the business, which has been cash-positive since March 1995, had improved.

Traffic figures for Le Shuttle tourist service for December rose 21 per cent. The amount of freight carried rose only slightly because it was hit by the French railway strike. This year the company expects to double the pounds 280m in revenue it received in 1995.

But a forecast for the Eurostar high-speed train service by its operator revealed that growth in passsenger traffic will fall well below its target for the rest of the decade.