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Eurotunnel faces debt drop defeat

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CHANNEL TUNNEL operator Eurotunnel's plan to head off financial collapse by persuading its creditors to write off around ú4bn ($7.5bn) of its $11.8bn debt looked unlikely to succeed as NCEI went to press.

Eurotunnel chairman and chief executive Jacques Gounon told shareholders that he would fight for a debt write off, but a source close to Eurotunnel creditors ruled this out.

According to the source, a debt for equity swap was the only option likely to save Eurotunnel from going into administration.

This would involve creditors exchanging most of Eurotunnel's debt for new shares.

Gounon, backed by the shareholders, opposes this option on the grounds that such a move would further drive down Eurotunnel's share price. These are currently trading at under 20p (37c) each, but many shareholders paid as much as ú8 ($15) per share when the company floated on the London and Paris stock exchanges in 1987.

Gounon was confirmed in his post by shareholders at last Friday's annual general meeting, on the basis that he promised to oppose a debt for equity swap.

The company's debt restructuring proposal will be presented to creditors at a crunch meeting in mid July.

But if talks fail, creditors could take over the running of the Channel Tunnel, forcing Eurotunnel out of existence.

The creditor source argued that a debt for equity swap would allow the company to retain some profi ts and even pay a dividend rather than ploughing all of its operating profit into debt and interest payments.

Writing off some of the debt would still leave Eurotunnel with over ú2bn to repay, leaving shareholders with little prospect of a dividend before the end of the Channel Tunnel concession, said the source.

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