The Eurotunnel rights issue part one: Strategy

In 1994, Eurotunnel, operator of the Channel Tunnel between Britain and France, announced it was launching an £858 million gross rights issue of equities to cover its cash requirements and secure its financial future. At the time, the issue was one of the largest in British corporate history, and can be considered a skilful piece of financial engineering. All its financial manoeuvres were undertaken in the face of zero revenues up to May 1994, and no dividends were expected to be paid until the year 2004. Yet Eurotunnel persuaded the financial community to invest in 324 million units (twinned shares). In Part One of this Case Study, Paul Stonham documents Eurotunnel's strategy in raising both equity and debt in a refunding exercise in 1994 and its management and decision-making on such matters as: debt/equity mix, cost of capital, debt refunding, timing and size of rights issue, equity and loan warrants, interest rate and currency risk, and banking preconditions.