The Government announced yesterday that it expected Railtrack to fetch between pounds 1.75bn and pounds 1.95bn as Clare Short, the Labour shadow transport secretary, labelled the sale an "act of vandalism" and Jimmy Knapp, leader of the RMT rail union, called it "a rip-off". The Liberal leader, Paddy Ashdown, said: "The Government has undervalued the railways."
But Sir George Young, the transport secretary, said "some of our critics spend half their time saying we are giving it away and the other half saying don't touch the shares. They are in a real muddle on this one."
The Government is to sell 100 per cent of Railtrack - 500 million shares - with the price to be set a fortnight from tomorrow on the basis of a bookbuilding exercise with institutions.
Analysts were divided yesterday after seeing the full prospectus, with some saying they were telling their clients to wait until after the sale to buy in the market and others recommending purchase even at the top end of the expected price range.
Retail investors will be offered a 10p discount on the first instalment, setting their price range at 340p to 380p on the fully-paid shares and 190p on the first instalment - a pounds 20 discount on the minimum investment of 200 shares. Institutions will pay 350p-390p a share, with a first instalment of 200p.
The Government has loaded the offer with goodies to offset the anti-privatisation campaigns by Labour and other opponents of the sale.
This makes the return in the first year highly attractive, especially to private investors, with advisers pointing out that the annualised yield up to February next year when the interim dividend is to be paid works out at 25 per cent for retail investors eligible for a discount.
This comprises a final dividend in the autumn to be paid out of last year's profits - made while in the public sector - the interim dividend in February and the 10p-a-share discount on the first instalment. Before tax, these give a gross 18.8 per cent return on the part-paid price of 190p in the first nine months. The net final dividend after tax will be 13.75p. It is expected the interim will be half as much.
James Sassoon, a director of SBC Warburg, the global co-ordinators of the sale, said the 500,000 registrations last week were "a larger number for the final week than we have seen in any previous privatisation".
The last-minute rush took the total number of registrations to 1.9 million, though advisers conceded it might have been accelerated by the shorter- than-usual period for registration.
Mr Sassoon said the 1.9 million was two-thirds as many as registered for the much larger pounds 4bn sale of the Government's remaining stake in the electricity generating companies last year, privatisations twice the value of Railtrack.
The Government said at least 30 per cent of the shares would be allocated to retail investors, but Mr Sassoon said "we could go north of 30 per cent and will do if the demand is there".
Advisers believe that on the basis of the registrations so far the retail allocation could exceed 40 per cent even if it does not reach the maximum possible 50 per cent.
In most past privatisations, at least 30 per cent of registrants have ended up applying for shares, and at that level the retail part of the offer would be about twice subscribed.
Rory Tapner of SBC Warburg said that the roadshow of institutions in California earlier this week had produced "good quality feedback" and further presentations are to be made over the next fortnight in the US and Europe before the final price is set on 17 May ahead of the start of trading on 20 May. The UK retail offer closes at noon on 15 May.
The prospectus disclosed that Railtrack's costs for the sale are only pounds 27m before VAT, compared with a provision of pounds 46m made in Railtrack's accounts for the year to March 1995.
Investment Column, page 20
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