London Eye's sky high debt

THE London Eye Company has reappointed Japanese lender Sumitomo Mitsui to advise it on refinancing the project by restructuring its crippling debt.

At present, the London Eye Company is paying interest at the usurious rate of 25%. As a result, its debts have rocketed from £48m in 2000 to £130m this year.

The appointment may also represent a breakthrough in a financial logjam which has sparked a deterioration in relations between the original architects, David Marks and Julia Barfield - also part owners of the project - and the attraction's operator, Tussauds.

Sumitomo Mitsui helped finance the original construction of the 450-foot high attraction, but last year stood down as refinancing adviser.

The current loan is from British Airways, itself a one-third shareholder in the company. Marks and Barfield own a third, as does Tussauds which is owned by private equity group Charterhouse.

The debt has further ballooned since 2002, when BA indicated it wished to get out.

Earlier this month, Marks said Tussauds made it clear it would not consider any refinancing proposal that did not result in the group obtaining total control, and has been blocking such efforts for three years.

Charterhouse has offered to buy the other shareholders out of the project, and may eventually want to list the company on the stock market.

The Eye attracts about four million visitors a year, making it the most popular paid-for visitor attraction in Britain and second only in Europe to Disneyland Paris.

Sales are a massive £38m a year, but around 60% is swallowed up in operating costs and most of the rest is paid to service the debt, growing at the rate of £25m a year. The Eye's 2002 results showed the crippling debt charges widened the company's pre-tax losses to £11m.

Marks said his practice earns less than £250,000 a year for architectural and engineering services. In contrast, BA is taking between £8m and £10m a year in interest payments, while Tussauds earns more than £3m a year in management fees and expenses.

BA said the interest rate reflected the high-risk nature of the project. Tussauds denied the company was blocking refinancing.