Some first investors in the Channel Tunnel got the bonus of those £1 tickets: is this a good way to raise money for large infrastructure the public will benefit from? I spoke recently with one of these early investors, a moneywise accountant by trade, and it was an interesting conversation:
“I am an investor in the Channel Tunnel,” he said, when I was bemoaning the fact that Eurostar no longer stops in Ashford. “Best investment I ever made.”
“How come?” I asked in surprise. “I thought that for years no dividends were paid to the initial investors.”
“I can travel through the tunnel for £1. I have been doing that for years.”
“But I don’t think that the other investor I know gets that benefit,” I said.
“That’s right. You had to invest at least £5,000 by a certain date to get that extra privilege. I have probably made that back several times over in those cheap tickets.”
How the Channel Tunnel was financed
This conversation set me off researching how the Channel Tunnel was originally funded in the 1980s. Once the agreement was made between the French (under President François Mitterrand) and the UK government (under Margaret Thatcher), there were divergent views of how such a huge infrastructure project could be funded.
The French, swayed by very optimistic predictions of passenger numbers produced by their state railway company SNCF, were happy to put in more state funds, but Thatcher was a champion of privatisation and wanted private investors. So, the Eurotunnel company was formed, with shares sold on both the Paris and London stock exchanges.
There was a catch in getting the £1 privilege. It was only available to the person named on the share document, but, in France, this is always the bank that is buying them for the investor. So, unaware French buyers did not benefit. But those in the know simply bought on the London Stock Exchange. This privilege was granted until the end of the tunnel concession (2042).
As the concession period has been lengthened several times (it is now until 2082), it is unclear whether the holders can continue with the cheap ticket for longer (if they are still alive). My friend has tried querying whether the £1 rate would still prevail for his corpse should he die across the Channel and he plans for cremation in Kent.
The company has tried to abolish the privilege, but due to a shareholders’ revolt, this did not succeed. Getlink have instituted the Shuttle club and require a £49 annual fee to maintain the rights to these cheap tickets. They are clawing back a bit of extra money by that means.
Dividends, debts and profits
For most of its history, Eurotunnel was not a financial success for investors, even though it is now a booming travel operation with full trains. In the 1990s, shortly after it opened, the cheap, short-haul air flights nearly knocked such cross-channel train journeys out of the market.
The cost of construction has been paid for by a combination of equity (all those private investors) and debt to banks. For many years, the 80,000 shareholders received no dividends. Although the debt to the construction companies was paid off by 2006, large debts to the banks remained. Debts of £9bn had escalated, and by 2006, Eurotunnel almost entered bankruptcy. Shareholders eventually agreed to a dilution of their shares, while banks came to the rescue. After this dilution, only about 3,000 of the original shareholders with the ticket concession remained.
But my informant actually made a bit of money by trading in the share at the time of restructuring when existing shareholders could opt to buy a warranty, which means shares at a reduced price to be held for a certain length of time. As the share price then rose, he was able to make a large profit on the warranty.
The first time that dividends were paid out was in 2009, when £7.6mn was paid out to shareholders.
How is Getlink doing now?
In 2017, Eurotunnel became Getlink. This now controls three businesses:
- Eurotunnel: 65.3 % of the business
- ElecLink: 26.1%
- Europorte: 8.5%
Europorte is for rail freight and Eurotunnel is for the railway, both Le Shuttle and the revenue from Eurostar. ElecLink is a new investment in an electric cable that enables the South of England to draw electricity from the French atomic power stations.
A list of the top ten investors in Getlink reveals that a French company, Eiffage, owns 20.55%, and then Italian Mundys owns 15.49%, and next Abu Dhabi Investment funds at 6.65%. No British companies on the list until, in tenth place, Atlas Infrastructure at 0.9736%.
Does privatisation work for rail?
Nowadays, there is growing debate about whether the privatisation of public assets so championed by Thatcher is the right way of financing them, given what has happened with British water services and also British Railways, which was split up and sold off in 1996. Both water services and railways in the UK were originally constructed by private enterprise before the 20th century. They were later nationalised, or taken as public services, although divided into various regional operations.
When railway operations were sold off as private companies in the 1990s, the actual railway (rails, embankments, bridges, etc.) was initially made into a company called Railtrack. When this failed, it was taken into public ownership as what is now called Network Rail. In France, by contrast, the railway and the trains have always remained in state ownership in the SNCF.
Who should invest in new technology?
Economists debate over whether state or private finance is best for getting going with new technology or constructing large infrastructure. For large infrastructure, there are examples of successful public investment by governments, both on the right and on the left.
The motorways in Italy and Germany were initiated by fascist governments. The new railways and roads in China are paid for by the state. NASA, owned by the US government, financed the space programme until recently. It was then realised that there were rich investors ready to risk paying for moon rockets. Some of these companies, like SpaceX, are owned by the same tycoons who have gained their billions in the new technology of the internet.
Options for private finance
The options are:
- 1) One rich investor comes forward with most or all of the money (for example, Elon Musk with SpaceX, or Richard Branson with Virgin trains). They are sometimes called an ‘angel investor’ because the immediate return on their money is not their first concern.
- 2) The company is listed on a Stock Exchange, and many smaller investors can buy shares (equity). They then expect to get a share in the profits, paid out in annual shares or realised when they sell those shares to other investors at a price higher than when they bought them.
- 3) The company borrows money from another company or a bank. It has to pay interest every year and eventually repay the debt. If a company can’t make this money from profits, it needs more equity. Southern Water, for instance, last year needed a large injection of equity from Macquarie.
If you look at the accounts of companies that run facilities like water or rail in the UK, the small private investors are hardly mentioned. What feature most strongly are either the large companies like Blackstone or Mundys that specialise in huge, engineered infrastructure, or sovereign wealth funds, as from Norway or the Gulf states, or large pension funds. The list quoted above for the Channel tunnel (Getlink) nowadays shows this up. These large investors in their turn tend to get their money from managed funds, usually pension funds.
There are, of course, still individual private investors. They mostly subscribe to the Financial Times or Investor’s Chronicle and manage their buying and selling of shares for themselves. My financial informant on the Channel Tunnel said these made up a tiny proportion of the original investment in the tunnel – maybe 5%.
Investing not for financial returns but for the benefit of using the service
I do not know whether his original motivation was the calculation of making money on the shares, or whether he was more attracted by the benefit of that £1 ticket. The other original Eurotunnel investor I know says that, although hoping not to lose on the investment, he was primarily inspired by the historic innovation and what it could do for the local Kent economy. He did not invest enough to get the £1 ticket but is still immensely proud of being an ‘owner’ of Getlink and helping to get it going.
This makes me ponder that there is an aspect of capitalism under-acknowledged in the financial press. People do not only invest because they want a return on their capital (for their retirement, for their heirs, or for splurging on luxuries). Some want to enjoy the immediate benefits of what they are buying. This applies to the pre-selling of creative goods, for instance, books or music recordings. It also applies to subscribing to societies that give membership benefits, for instance, English Heritage or the National Gallery.
I wonder whether starter finance to run local trains to Calais-Fréthun could be gained, not from just waiting for an angel investor, or state companies rather unwilling to consider complications, but simply by many ordinary people who trust enough in the future benefit of cheap rail tickets to pay for them in advance. This, after all, was one of the ways the Channel Tunnel itself was financed.
