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Monday, March 15, 1999 Published at 16:57 GMT


Business: The Company File

Tunnel vision: the Eurotunnel story

Eurotunnel is finally on the right track

Depending on your view point the Channel Tunnel is one of the greatest engineering feats of the 20th Century or one of the most expensive white elephants in history.

Ever since construction began in 1986 the project has been dogged by delays, disputes and soaring costs.

But somehow, against all the odds, Eurotunnel is finally beginning to drag itself out of the financial quagmire that threatened to engulf the group.

Flawed masterpiece


[ image:  ]
When the Channel Tunnel deal was signed thirteen years ago it was seen as a golden chance to create an Anglo-French engineering masterpiece and finally link England to Continental Europe.

However, the dream was soon to turn into a nightmare.

The group raised £770m from a stock market flotation in November 1997, but it was soon apparent that the estimated £4.9bn total cost of the tunnel would turn out to be woefully inadequate.

Rows erupted between Eurotunnel's ebullient chairman Sir Alastair Morton, and TransManche Link, the consortium of construction groups building the tunnel over £1bn of bills.

As costs mounted it became clear that Eurotunnel would run out of money before the tunnel was completed.

Hole in its finances


[ image:  ]
Investors staring into an empty hole, were asked to stump up more cash - another £566m to be exact - to help avoid the embarrassing collapse of the whole project.

The money was enough to ensure that the tunnel opened in 1994, albeit a year later than originally planned.

But even that did not mark an end to the group's financial troubles. Indeed its position went from bad to very much worse.

The cost of the project had ballooned to almost £12bn, more than double the original estimates.

Eurotunnel needed more cash and once again investors were asked to cough up. And in the euphoria surrounding the completion of the project they did just that - giving Eurotunnel another £858m.

However, this euphoria turned out to be sadly misplaced.

In hindsight Eurotunnel's estimates of the number of people travelling through the Channel Tunnel were wildly optimistic.

Irate investors

So much so that the documents used to persuade investors to part with their money have been described by some analysts as works of pure fiction.

Eurotunnel was facing a crisis. The tunnel had simply cost too much to build - and was not even producing enough revenue to cover the interest payments on the group's huge debts.

Its financial situation soon became untenable and the group was faced with bankruptcy.

Eurotunnel owed £9bn and was clocking up staggering interest payments of £2m a day.

It had no choice to suspend interest payments and beg its bankers for mercy.

Then Eurotunnel unveiled a 1995 loss of £925m - one of the biggest in UK corporate history. A fire in the tunnel, which lead to freight traffic being suspended for more than six months, added to its woes.

What a save

Eurotunnel could so easily have gone under there and then. But byzantine talks with bankers and shareholders finally paid off.

The banks agreed to swap billions of pounds worth of loans for shares.

Despite a storm of protest from hundreds of thousands of French shareholders, who felt they had been hard done by, Eurotunnel's restructuring plan was finally agreed.

For their part the UK and French Governments extended the concession to operate the tunnel by 34 years to 2086.

Since then Eurotunnel has clawed its way back to financial respectability and has just announced its first net profit.

Ghost train

Of course it still owes a huge amount of money, will not make a profit for years and its first dividend will not be paid out until at least 2006. Of course hundreds of thousands of people have lost money.

However at the end of it all at least the tunnel was built - and it will be around for years after the money and the debts are forgotten.

Next stop is the fast link Channel Tunnel rail connection from London to Kent.

It too has been dogged by financial delays, mismanagement and disputes.

Just as the ghost of the Eurotunnel disaster is put to rest, another financial spectre has emerged.

However, that is another story.



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