Financial management of channel tunnel Essay Example | Topics and Well Written Essays - 2000 words

Financial management of channel tunnel - Essay Example Eurotunnel was mainly financed by bank loans from a large consortium of over 100 European and Japanese banks. Eurotunnel also raised substantial amounts of equity in four public offerings during the construction of the Tunnel, mainly from small shareholders in France and the UK. The marketing of the shares was pitched towards small shareholders. In the end, the Channel Tunnel costs about 10 billion to build (compared with initial estimates 8 years earlier of about 5 billion). Of this 10 billion, 8 billion was raised in debt from banks and 2 billion in equity. The last fund-raising exercise took place in May 1994, just 2 months before the new services were to begin, when 800 million of new equity and 700 million of debt was raised to get the project finished and up and running. By then the banks and many shareholders were very nervous about the costs and delays to the project and the prospects of recouping their investment. Eurotunnel shareholders have seen their investment crumble by around 90% since the company went public in 1987. Construction costs spiralled and revenues fell short of forecasts, leaving the company struggling with debts of 9bn (6.4bn). Shareholders have never been paid a dividend. The UK government has already made it clear that there can be no question of any public money for Eurotunnel, and there is no change in that position. Eurotunnel shareholders are mostly French private investors. But it said it could not afford to do so without help in cutting the burden of repayments on debts which it ran up during vast cost over-runs on the tunnel's construction in the late 1980s and early 1990s. Euro tunnel begs for rescue plan (Clark, 2004)2. 2. Andrew, Clark, (2004) Guardian, retrieved from the website on 19th Feb' 06. (http://www.guardian.co.uk/) Financial Management of Channel Tunnel Rail Link (CTRL) The Channel Tunnel Rail Link (CTRL) is the largest civil engineering infrastructure project currently being constructed in the UK with a budget of 5.3 billion (S$14.8 billion). The Project is split into two sections. Section 1, 70 km long from the Channel Tunnel to Fawkham Junction in North Kent is scheduled for completion and operational running of Eurostar trains by September 2003. Section 2, 39 km long, completes the Link from North Kent to St Pancras in central London and is programmed to be operational in January 2007 (Davies and Joy, 2004)2. The London & Continental Railways Limited (LCR) was awarded the contract to build the CTRL in February 1996 and to run the British arm of the Eurostar International train service (Eurostar UK). Initially, LCR proposed to fund the construction of the link from private finance through debt and equity raised on the back of future revenue from Eurostar, UK and from direct government grants. This overtly optimistic plan backfired and LCR abandoned its plans to raise private finance and approached the Department for additional grants in return for a share of future profits. After reviewing the options, the department of transport decided to restructure the existing deal with LCR. In 1998, the government set out the principles of a negotiated restructuring which enhanced public