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Group Eurotunnel S.A.

In: Business and Management

Submitted By drizzt134
Words 4440
Pages 18
Groupe Eurotunnel S.A.’s (GESA) roots go back to the Channel Tunnel Treaty that was signed between the UK and France in Feb 12, 1986. The plan is to connect Folkstone, England to Coquelles, France with 50 km rail-only tunnels running under the British Channels. Winning design is submitted by Channel Tunnel-Frace Manche Group, a group of UK & French banks and construction companies which later renames itself to Eurotunnel. Eurotunnel becomes a stand-alone entity with its own board of directors and senior management team. Initial projection for the cost of the project is £4.9 billion and the initial estimated completion date is 1993. Also, Eurotunnel is granted a 55 year concession to construct and operate the tunnel.

As first order of business, in 1987, Eurotunnel set out to sign a usage contract called Railway Usage Contract (RUC) with the UK, French and Belgian national rail companies. This contract allows the rail companies to utilize 50% of Channel Tunnel capacity in exchange for annual cash payments to Eurotunnel that comprised of a fixed annual fee, a variable fee calculated using toll formula, a contribution to Eurotunnel’s operating costs and a minimum usage charge. Then the company starts raising capital through debt and equity offerings. Eurotunnel got listed in both Paris and London Stock Exchanges and offers discounted (and per my research, free in some cases) travel to shareholders.

Construction of the tunnel begins in November of 1987 and it is completed in April 1994. At this point, Eurotunnel has a whopping £8.1 billion in debt and only £1.7 billion in equity. To be honest, this is the part of the paper when my jaw first dropped. I have not been this appalled since I read a case on Enron for one of my undergraduate classes. GESA’s initial cost and revenue projections, its management team’s execution of financial and operational strategies and...

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