Railtrack tries to get the City aboard

Would-be investors face a journey into the unknown, Patrick Hosking reports

EVERY MORNING Richard Aitken-Davies catches the train from his west London suburb of Raynes Park to Waterloo. He has been a rail commuter for 25 years and, like any other, he has suffered delays, cancellations, overcrowding and all the other agonies that plague commuters. He has good reason to want rail privatisation to succeed.

Unlike his fellow passengers, he has rather more influence to ensure it does. Mr Aitken-Davies is the privatisation director at Railtrack, the core of the broken-up British Rail. His job is to prepare Railtrack for a stock market flotation in the spring.

Amiable, methodical and quiet-spoken, he is well qualified to do so. He worked in the electricity industry for 15 years and saw PowerGen's transition to the private sector.

"We thought electricity privatisation was a big challenge at the time, but this is significantly more complicated," he admits. "But I think we'll get there."

Suddenly the float looks much nearer. Last week the Government successfully sold the three rolling stock companies for a total of pounds 1.8bn. From its modest offices off Russell Square in Lon- don, Railtrack is readying itself for intense scrutiny by the City. A first draft of its prospectus was completed in September. The first report and accounts has been published, showing an annual pre-tax profit of pounds 189m.

The first step is one of education - getting the City to understand Railtrack's position as one of more than 70 interconnecting companies created out of the old British Rail. Mr Aitken-Davies has in recent weeks run two trips for stockbroking analysts to see parts of the network.

Railtrack, chaired by the former British Petroleum boss, Bob Horton, consists of 23,000 miles of track, 980 tunnels, 90,000 bridges, 40,000 commercial property units and 2,500 stations. It has net assets of pounds 1.48bn.

However, such figures give few clues to the actual value the stock market will put on the company on flotation. Railtrack expects to be treated as a yield stock. Its income is assured for the next seven years under track access agreements already signed with the train operating units - the precursors of the franchisees who will actually run the train services. On top of these charges - which amounted to pounds 1.95bn last year - Railtrack receives revenues from its enormous property portfolio.

With costs reasonably stable, Railtrack becomes a serious, if unexciting investment proposition. Before the City gets out its collective wallet, however, there are a number of key uncertainties to be sorted out.

o Debt. Railtrack has pounds 1.5bn of debt on its balance sheet and is negotiating how much it should shoulder when it comes out of Government control.

It is a straightforward trade-off for the Government: the more debt it palms off on Railtrack, the smaller the proceeds flotation will bring in. For Railtrack, some gearing makes sense, but not so much that it curbs its capital-raising ability.

o The performance regime. Railtrack and the train operating units are putting the finishing touches to this menu of penalties and incentives. Where Railtrack is responsible for delays, cancellations and other faults, it will have to pay penalties to the operators. Where it beats set targets, it will be able to demand access charge supplements from the operators.

The system is already running in shadow form and the impact - positive or negative - will be published in the interim figures in the final prospectus.

o The Briscos. These are the 13 BR infrastructure service companies, which handle everything from track repair to bridge-building. Payments to the Briscos account for a sizeable chunk of Railtrack's operating costs. Railtrack, say analysts, has much more scope to cut costs than it has to raise revenues. But that scope depends largely on the Briscos being in (efficient) private hands.

Mr Aitken-Davies comments: "It is highly desirable that some of them should be in the private sector before we float. It would add to our credibility."

o The regulator. John Swift, the rail regulator, has considerable powers. He has already set the track access charge regime so that Railtrack has to cut its charges by 2 per cent in real terms each year. His utterances over coming months will influence investor sentiment.

o Property. Mr Swift has ruled that Railtrack should share its property profits with the train operating companies. Railtrack is negotiating the percentage it has to give away. "We want that percentage to be as small as possible", says Aitken-Davies.

o Politics. Labour has threatened to restore Railtrack to public control if it wins the next election.

o The stock market. The appetite for new issues varies enormously.

Start your day with The Independent, sign up for daily news emails
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: Sales Assistant / Buyer

£15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

Recruitment Genius: Customer Service Advisor

£15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

Day In a Page

Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

'The economic collapse has happened. What is at risk now is democracy...'

If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
The science of swearing: What lies behind the use of four-letter words?

The science of swearing

What lies behind the use of four-letter words?
The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

The Real Stories of Migrant Britain

Clive fled from Zimbabwe - now it won’t have him back
Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

Who will fill Donna Karan's boots?

The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'
10 best statement lightbulbs

10 best statement lightbulbs

Dare to bare with some out-of-the-ordinary illumination
Wimbledon 2015: Heather Watson - 'I had Serena's poster on my wall – now I'm playing her'

Heather Watson: 'I had Serena's poster on my wall – now I'm playing her'

Briton pumped up for dream meeting with world No 1
Wimbledon 2015: Nick Bollettieri - It's time for big John Isner to produce the goods to go with his thumping serve

Nick Bollettieri's Wimbledon Files

It's time for big John Isner to produce the goods to go with his thumping serve
Dustin Brown: Who is the tennis player who knocked Rafael Nadal out of Wimbeldon 2015?

Dustin Brown

Who is the German player that knocked Nadal out of Wimbeldon 2015?
Tour de France 2015: Twins Simon and Adam Yates have a mountain to climb during Tour of duty

Twins have a mountain to climb during Tour of duty

Yates brothers will target the steepest sections in bid to win a stage in France
John Palmer: 'Goldfinger' of British crime was murdered, say police

Murder of the Brink’s-MAT mastermind

'Goldfinger' of British crime's life ended in a blaze of bullets, say police
Forget little green men - aliens will look like humans, says Cambridge University evolution expert

Forget little green men

Leading evolutionary biologist says aliens will look like humans
The Real Stories of Migrant Britain: An Algerian scientist adjusts to life working in a kebab shop

The Real Stories of Migrant Britain

An Algerian scientist struggles to adjust to her new life working in a Scottish kebab shop
Bodyworlds museum: Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy

Dying dream of Doctor Death

Dr Gunther von Hagens has battled legal threats, Parkinson's disease, and the threat of bankruptcy
UK heatwave: Temperature reaches 39.8 degrees on Central Line - the sweatiest place in London

39.8 degrees recorded on Tube

There's hot (London) and too damn hot (the Underground). Simon Usborne braved the Central line to discover what its passengers suffer
Kitchens go hi-tech: From robot chefs to recipe-shopping apps, computerised cooking is coming

Computerised cooking is coming

From apps that automatically make shopping lists from your recipe books to smart ovens and robot chefs, Kevin Maney rounds up innovations to make your mouth water