Railtrack crisis after shares plunge on warning that they may be 'worthless'

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Shares in Railtrack plunged yesterday after a shock warning from a leading City investment bank that the embattled network operator may be "worthless". The 17 per cent collapse in the share price forced Railtrack out of the FTSE-100 Index of blue-chip companies and prompted renewed speculation about moves to renationalise the company.

The warning from the brokers ABN Amro sent Railtrack shares down to 364.5p. The company is now worth less than it was when the Conservatives privatised it in 1996 at 390p a share. Since the crisis caused by the Hatfield rail crash last October, Railtrack has lost more than two-thirds of its value.

Last night Sir Richard Branson, chairman of Virgin Trains, said he was prepared to step in and take over the running of the tracks. "For the moment, we would like Railtrack to do everything they have pledged," he said. "If they fail, there is always the option for the Government to let rail companies run their own tracks."

The research note from ABN urged investors to "withdraw their equity before it is wiped out". The brokers said Railtrack was now worth 58p a share, valuing it at £298m.

But it added: "The rising levels of debt threaten to engulf the value of the regulated assets, rendering the equity worthless."

ABN added: "To construct an investment case depends on a radical transformation of the company's operating performance, but more importantly requires a huge transfer of wealth from the taxpayer to shareholders. Both are subject to considerable uncertainty and require a huge leap of faith."

Railtrack has been under increasing pressure since it announced losses of £534m two weeks ago and revealed a £3.6bn "black hole" in its finances caused by the rising costs of maintaining the network after the Hatfield crash, which killed four people and caused an upheaval on the rail network unprecedented in peacetime.

The company has demanded £2.6bn more in government subsidies to avert a financial crisis. But it incensed passenger groups, rail regulators and ministers by maintaining its £138m dividend payment to shareholders.

ABN Amro put the gap in Railtrack's finances as high as £4.5bn and said there was no guarantee this would be met by taxpayers or increased efficiency. It said that although Railtrack's equity value might be "completely destroyed" it could survive as a shell company through which to channel investment into the rail network.

"This may not be an unpalatable scenario for the Government." the report said.

Government aides have indicated that the Prime Minister wants Railtrack to sell off its £3bn property portfolio to fund the renewal of the network before asking taxpayers for more money.

Railtrack refused to comment in detail on ABN Amro's report, saying: "It is one of many brokers' reports put out since our results and they say various things. Deutsche Bank rates us a strong buy."

Railtrack's £534m loss last year was caused by £733m of exceptional charges, mainly related to Hatfield. The company says it needs £17.1bn to maintain and renew the network over five years. The rail regulator is allowing £13.3bn.