Railtrack to pay pounds 65m sweetener

Extra dividend to woo railway investors will come from pre-flotation profits

THE Government is to pay out a surprise pounds 65m in extra dividends to new shareholders in Railtrack in a bid to ensure the success of the flotation, the centrepiece of its controversial railway privatisation programme.

In a novel tweak, investors buying shares in Railtrack will receive a final dividend payable for the period when the company was still in state hands.

According to one adviser on the pounds 1.8bn flotation, the total first-year return for private investors will be an enticing 15-20 per cent, after taking account of other perks and the gearing effect of the partly paid shares.

The extra sweetener is likely to fan accusations that Railtrack, which owns the track and stations and operates the signalling of the entire network, is being sold too cheaply and that taxpayers are being shortchanged. Paying a dividend to new shareholders out of profits earned in the pre- flotation period is unprecedented.

However, advisers to the issue argue that the largesse will at least be partly paid back because it will entice more institutional shareholders and therefore enable the issue price to be set higher than otherwise.

The minimum initial investment has also been set comparatively low, at pounds 400. Investors will have to pay a second pounds 400 instalment a year later. The global co-ordinator, SBC Warburg, envisages 30 per cent of the shares going to small investors.

The pathfinder prospectus tomorrow will also reveal that 100 per cent of Railtrack is to be sold and that there will be no "golden share" to prevent foreign companies launching a bid.

The accident-prone privatisation wobbled again last week with the resignation of Roger Salmon, the official in charge of selling rail franchises.

Despite all the problems, the advisers believe investors will see Railtrack as a potentially attractive investment. Its revenues are virtually assured because of long-term government subsidies to its customers, the train operating companies, and there is considerable scope for cost cutting. The share price is expected to be set so that Railtrack yields 6.8 to 6.9 per cent - on a par with a similar utility stock such as the National Grid.

Private investors will pay less for the shares than institutional shareholders. Last week Railtrack announced loyalty bonuses for small investors in the form of bonus shares or a discount on the second instalment.

At least some institutional investors are yet to be convinced of the merits of the company. One said it was concerned that the new rail structure wasuntested. Fewer train operating companies had been franchised out than originally envisaged. There was also the uncertainty about how a Labour government would treat Railtrack.

The institution was also concerned about the lack of independent analysis. Most published analysis has been done by investment houses linked to the float. These include the three global managers, SBC Warburg, Merrill Lynch and Union Bank of Switzerland, and the six co-managers, which include Credit Lyonnais Laing, Fleming's, James Capel and Nikko.

The prospectus is expected to reveal for the first time how Railtrack is faring under the new performance regime, in which it makes penalty payments to train operators when delays are its fault. Railtrack set aside pounds 84m for such fines in the last year.

This week Railtrack's executive chairman, Bob Horton, begins a month of investor roadshows in Britain, the US andEurope to entice institutional investors.

Small investors have to register with a share shop by late April to qualify for additional perks. On 1 May SBC Warburg announces a price range for the shares, and the formal "bookbuilding" - a process whereby institutions indicate their level of interest in the issue - begins the following day. The public offer closes on 15 May. The issue price and allocation of shares is decided on the weekend of 18-19 May and, if necessary, applications are scaled back. Dealing begins on 20 May.

Comment, page 2

Profile, page 7

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee