Euro Tunnel and the Banks

Role of the Banks in beginning

• After the commission setup by the French and British Government in 1982 to enquire about feasibility of
financing the project through Private Equity
• Arranging Banks: A consortium of 5 banks namely Bank Indosuez, National Bank of Paris, Credit Lyonnais,
Midland Bank, and National Westminster Bank led the second research in March 1984 to show the
feasibility of the project
• Banks came to agreement with the construction firms to limit the time to 6.5 years and keep the cost
overrun to 25% of initial cost
• The cost of £4.8 Billion rose to £6 Billion. Out of this £1 Billion were to be raised by PE and other £5B by
Syndicated Banks.
• The Arranging banks produced more than 30 letters of intent for loans providing up to £4B for the project
• Promoting Banks(Arranging banks) and construction companies issued a seed capital of £50 Million and
would raise another £200 Million by issue of warrants through private placement of shares.
• The Promoters (Construction companies and Arranging Banks) also looked into the possibility of IPO for
remaining funds
• The second issue of equity for raising funds became a problem as the concession and railway usage contract
was not signed which would account for over 50% of the revenues.
Role of the Banks in between the project
• The arranging banks increased the number of banks for syndicated loan from 30 to 200
• The cost of General contractor (Maîtrise d'œuvre) which would provide the details to syndicated banks was
coming to be £72.1M and in the course of project another MdO was appointed by Eurotunnel named Project
Implementation Division (PID)
• In the 1990s the inflation rate and interest rates became more than expected and the smaller banks in the
lending consortium began to withdraw
• The IPO of Eurotunnel in 1987 was success and the cost presented at that time was £6B which had become
£9B, a cost overrun by 50%.
• The ROE for its 50 year life was 14.4%, implying that it was an unattractive opportunity.
• Investing in FTSE100 @ 2144 in 1990 and withdrawing in 2020 @6007 would give 9.33% returns with very less risk as compared to Eurotunnel
• Or considering Euro Stoxx 50 in 1990 @ 1098 & withdrawing in 2020 @ 3283 would give 10% return averaging per year as compared to Eurotunnel

• Another major problem came for raising equity, due to severe delay in achieving the milestones of the
projects and keeping up with the terms of agreement which stated that the company had to maintain a
healthy cash reserve
• This terms also stated that the loan amount cannot be used till the equity capital would be consumed which
created discomfort for the equity investors for investing more
• The banks were not willing to loose on such a big project and provided relief for debt repayments which
helped Eurotunnel to get funded from 50% debt and 50% equity