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
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Seth Rollins cashes in his Money in the Bank contract to win the WWE World Heavyweight Championship
WWERollins win the WWE World Heavyweight title in one of the greatest WrestleMania's ever seen
Arts and Entertainment
Jim Davidson performs his comedy show at Edinburgh Festival 2014
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Retirement Coordinator - Financial Services

Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

Recruitment Genius: Annuities / Pensions Administrator

Negotiable: Recruitment Genius: You will be the first point of contact for all...

Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

Ashdown Group: Learning and Development Programme Manager

£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

Day In a Page

No postcode? No vote

Floating voters

How living on a houseboat meant I didn't officially 'exist'
Louis Theroux's affable Englishman routine begins to wear thin

By Reason of Insanity

Louis Theroux's affable Englishman routine begins to wear thin
Power dressing is back – but no shoulderpads!

Power dressing is back

But banish all thoughts of Eighties shoulderpads
Spanish stone-age cave paintings 'under threat' after being re-opened to the public

Spanish stone-age cave paintings in Altamira 'under threat'

Caves were re-opened to the public
'I was the bookies’ favourite to be first to leave the Cabinet'

Vince Cable interview

'I was the bookies’ favourite to be first to leave the Cabinet'
Election 2015: How many of the Government's coalition agreement promises have been kept?

Promises, promises

But how many coalition agreement pledges have been kept?
The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

The death of a Gaza fisherman

He built his own reef, and was fatally shot there by an Israeli gunboat
Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

Saudi airstrikes are fuelling the Gulf's fire

Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

The only direction Zayn could go

We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

Spells like teen spirit

A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

If fashion is a cycle, this young man knows just how to ride it

British designer Jonathan Anderson is putting his stamp on venerable house Loewe
Number plates scheme could provide a licence to offend in the land of the free

Licence to offend in the land of the free

Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

From farm to fork in Cornwall

One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

Robert Parker interview

The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
Don't believe the stereotype - or should you?

Don't believe the stereotype - or should you?

We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor