Eurotunnel escapes liquidation as investors back pounds 9bn rescue

Eurotunnel last night escaped the threat of liquidation after a stormy shareholders' meeting in Paris voted overwhelmingly to back a controversial debt restructuring deal that will give its banks a controlling stake in the Channel Tunnel. The marathon meeting, attended by more than 1,700 shareholders, gave the Eurotunnel board a rough and raucous ride, at times drowning out the chairman, Patrick Ponsolle, with chants of "Ponsolle out".

But at the end of the seven-hour encounter the plan to reschedule Eurotunnel's pounds 9bn debt mountain was passed by a crushing majority of 98 per cent. Eurotunnel needed the support of 75 per cent of the votes cast.

Mr Ponsolle said: "The shareholder vote was massively clear. Over 80,000 shareholders voted clearly and responsibly. I hope they will allow us to turn a page in history for Eurotunnel."

In the event 78,254 of Eurotunnel's 720,000 long-suffering shareholders owning 272.5 million shares or 29.62 per cent of the company were represented. A minimum of 25 per cent of shareholdings needed to be present for the meeting to go ahead.

Mr Ponsolle arrived at the meeting with 178 million proxies in his back pocket, making victory for the board an odds-on bet. Shareholder action groups speaking for a further 3 per cent of the equity had also pledged to vote their proxies in his favour. But that did not stop irate shareholders from giving him a rough ride, their irritability made all the worse by the stifling heat and lack of refreshments - a stark contrast with the traditional British agm.

Mr Ponsolle and the rest of the board faced repeated attacks on their integrity, motives, and trustworthiness for "selling out" to Eurotunnel's banks. One shareholder summed up the feeling of a vocal and vociferous minority by declaring: "Lower your Fr2m [pounds 200,000] salary, then we will follow you. Otherwise we cannot trust you."

Another shareholder caught the ribald mood of the meeting by saying he had no intention of disposing of his 100 Eurotunnel shares because its annual meetings were the most entertaining show in town: "This year's is the best we have had. Nobody has bitten anyone's ear off yet but it may happen."

Eurotunnel will swap pounds 4.7bn of its debts for equity and loan notes, giving the banks an initial 45.5 per cent stake in the tunnel. This will rise to just over 60 per cent when the equity notes convert into Eurotunnel units but existing shareholders could in theory retain majority control over the tunnel by exercising in full two sets of warrants being issued.

Eurotunnel's hopes of getting shareholder approval for the refinancing improved markedly last month after the British and French governments agreed to extend its concession to at least 99 years. The approval was conditional on the debt restructuring plan being passed by both Eurotunnel's shareholders and its banking syndicate, which will vote on the deal in autumn.

In return for extending the concession from 2052 to 2086, the two governments will take a share in revenues generated over that period. Eurotunnel must also undertake to maximise the use of the tunnel by rail freight as part of a wider European initiative to get freight off the roads and on to trains.

The prospectus for the refinancing forecast that Eurotunnel could break into profit in 2005 and start paying a dividend in 2006. It also produced a best-scenario forecast, projecting profits of pounds 110m in 2005 provided it had secured an extension to its concession.

The approval of all 174 banks making up the loan syndicate is still needed for the restructuring to proceed. This is expected to take until autumn. But Eurotunnel's prospects of getting the backing of the syndicate have increased since it emerged in May that a handful of big US banks, led by Lazard Freres, have acquired nearly a quarter of Eurotunnel's debt.