Eurotunnel PLC is a privately owned Anglo-French consortium which raised its first equity capital in 1986 and 1987. By mid-1990 the company had approximately 560,000 individual shareholders and 208 bank lenders, with Japanese banks accounting for the largest single share of bank loans. At that time the company projected all-in costs for the tunnel of less than 5 billion British pounds. That estimate was subsequently raised to 7.6 billion pounds. When the tunnel was finally completed in 1994, it was more than 18 months late and 4 billion pounds over the initial budget (Economist, 1994).
In early April of this year, the operating company of the tunnel announced that it lost more than $600 million in 1994, and stated that its revenues had been so meager that it might not be able to meet its huge debt payments for debt service in 1995. The British-French consortium presently has debts of $12.9 billion and interest payments of more than $1 billion per year, making it the most expensive investor-financed project in financial history (New York Times, 1995).
From a financial and economic perspective, what is most fascinating about the recently completed Eurotunnel is that despite both official and unofficial projections, there is no telling precisely what it will earn, when it will earn, or even if it will survive. The discussion which follows will attempt to understand how such a situation could have occurred and whether anything could have been done to create a different outcome.
In 1802 when Britain and France found themselves temporarily at peace and able to conduct a proposition to dig a tunnel under the English Channel, the yield on long-term government bonds in the City of London was 4%. Bank lending rates at the time were 5%. At that time there were additional intermittent schemes to tunnel throughout the 19th century. In 1907 the House of Commons again rejected a plan but in 1929 a Channel Company bill failed in ...