Eurotunnel shareholders to lose out

EUROTUNNEL will today begin formal steps to negotiate away half its £6.2bn of debts through a restructuring that is expected to dilute existing shareholders' interests heavily.

Little more than a month after taking over as chairman of the Channel Tunnel operator, former French civil servant Jacques Gounon has succeeded in uniting the board and has gained approval to begin talks with the group's 122 creditor banks.

Last night, Eurotunnel said its board had unanimously agreed to request a waiver to its credit agreement. It added that the waiver, a necessary preliminary to restructuring talks, needed creditors' approval, but that would be obtained 'as soon as possible'.

A spokesman for the creditors' agent banks, HSBC and Calyon, welcomed the move and said some issues remained to be settled before the waiver could be signed.

However, Eurotunnel said it had already persuaded the banks to reduce the fees of their advisers, which Eurotunnel will be obliged to pay - an issue which has mired progress for more than a month.

The Chunnel operator said the renegotiation was likely to stretch almost to the end of the year, when a special agreement with creditors that keeps it from insolvency expires. Little more than a week ago Eurotunnel insisted it was aiming to present a plan to shareholders at its annual meeting in June.

But last night, the company said restructuring talks were likely to take eight months. Any failure to reach a deal within that time-frame will trigger a crisis and give creditors the right to take over the tunnel and its operations.

Because the tunnel cost more to build than expected, and has less traffic than predicted, it generates only half the cash needed to pay its interest bill. Under a special arrangement, Eurotunnel pays half its interest in so-called 'stabilisation notes', convertible into shares. But that lifeline deal expires on 31 December.

Eurotunnel confirmed that Gounon, who took over as nonexecutive chairman from Jacques Maillot in February, will handle the debt negotiations personally.

Herve Huas, the deputy chief executive who previously held the brief, will become "special adviser to the chairmanî.

The announcement, almost a year after French small shareholders ousted the entire board, is an overdue breakthrough.

Although Eurotunnel cannot pay its way, and professional investors usually give the company a wide berth, the e611m (£420m) market capitalisation has been sustained by almost a million French small investors. City sources say they face heavy dilution in any debt-for-equity swap.