Railtrack forced to consider £1bn rights issue

Click to follow
The Independent Online

Railtrack is considering a substantial rights issue to help finance the £6.6bn it will cost to expand the rail network by 2006 over and above the £15bn expenditure budget that the rail regulator announced on Monday.

Railtrack is considering a substantial rights issue to help finance the £6.6bn it will cost to expand the rail network by 2006 over and above the £15bn expenditure budget that the rail regulator announced on Monday.

One insider said that Railtrack had discussed a £1bn rights issue internally and that the timing was under debate. The rest of the £6.6bn would be met through bond issues and bank borrowings.

Analysts said that after Monday's favourable regulator review, the company could consider raising up to £4bn through the issue of new shares.

An industry source said: "The question is whether to go with a rights issue now, after the positive review, or wait until it has demonstrated to the City its management competence."

The money announced by Tom Winsor, the rail regulator, only covered maintenance and enhancement of the existing network.

Paul Plummer, chief economist at the Office of the Rail Regulator, said: "Our settlement enables Railtrack to go and raise other financing. It can raise new equity if it wishes to do so. That is up to the company." The expansion of the network and exceptional projects, such as the upgrading of the East Coast Main Line and the Thameslink 2000 project, were not budgeted for in the review. Railtrack must turn to the private sector to finance these schemes, which are required because the network is under strain from the huge growth in rail usage.

Railtrack and the train operating companies have identified expansion schemes that will cost £6.56bn more between 2001 and 2006 than the rail regulator provided for in his review. The sum does not include Railtrack's share of the £4.2bn bill for the first phase of the Channel Tunnel Rail Link.

Wyn Ellis, an analyst at Commerzbank, said: "A rights issue is the quid pro quo for the favourable review - the Government now expects Railtrack shareholders to dip their hands in their pockets."

On Monday, the rail regulator set out Railtrack's basic financing for the five year period from 2001. The £14.9bn budget was much more generous than was indicated in the regulator's draft review, published in July. The regulator set Railtrack's permitted return on capital at an attractive 8 per cent.

The positive settlement led to a 6 per cent jump in Railtrack shares on Monday and yesterday the stock rose a further 7 per cent to close at 1,190p, valuing the company at £6.1bn. The shares hit a high of 1,768p in 1998.

Mr Ellis said the company would want to see the shares at 1,400p, before it issued new equity.

He said: "If things are going well, there would not be a problem getting a rights issue away, given the 8 per cent return promised."

Comments