Uk Govt Stays Firm On Tunnel Franchise

Eurotunnels plan to refinance its £9bn debts, which will be outlined on Monday, will not include any concessions from the UK and French governments.

The company had been pressing for the two governments to extend its 65-year franchise to operate the Channel tunnel.

French president Jacques Chirac pushed the idea during a visit to the UK in May.

Eurotunnel had argued the extension was justified because the government had broken promises, such as the decision to extend duty-free sales on the ferries, which cut revenues. However, the UK government has so far refused to provide any kind of assistance.

Although an extension of the franchise would not have a significant impact on Eurotunnels finances, bankers were keen for the governments to show they were willing to make a sacrifice to help save the group from insolvency.

 

It also emerged on Thursday that the French authorities are on the point of granting Eurotunnel a licence to sell capacity on the tunnels fibre-optic link to telecoms operators. The move will increase competition in the market for long-distance and international telephone calls.

Exceptionally, the authorities are not insisting that Eurotunnel set up a separate telecoms subsidiary because they believe the risk of cross-subsidy from its other operations is small.

In a further development on Thursday, Adacte, the group of Eurotunnel shareholders which had called for the company to be put into bankruptcy proceedings, said it had written to the president of the Paris commercial court, to complain about the restructuring agreement. This is a possible precursor to a formal legal challenge. Albert Jauffret, head of the association, said: We are not happy with this accord if it means that shareholders will not receive a dividend for 20 or 30 years.

The Eurotunnel refinancing proposals will face their first big test when the six leading banks, with which the company has been negotiating, will present the plan to the next layer of 20 banks "� the so-called instructing group.

The plan needs to be approved by all 225 banks before it can be implemented, and the instructing banks will have a role in selling it to the rest of the syndicate.

The proposals are expected to include a debt-for-equity swap which would give the banks a 49 per cent holding in the company. At a conversion price of 113 1 /2 pence, the price at which shares were suspended on Monday, this would reduce debts by £1 billion. At the par value of 163.7 pence, the swap would be worth £1.5 billion.

The plan will also involve issues of equity warrants and convertible bonds which could leave the banks owning a majority of the shares at a later stage.