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.

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
News
news
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
PROMOTED VIDEO
News
Performers dressed as Tunnocks chocolate teacakes, a renowned Scottish confectionary, perform during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
news
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
News
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Arts and Entertainment
La Roux
music
Arts and Entertainment
Graham Fellows as John Shuttleworth
comedySean O'Grady joins Graham Fellows down his local Spar
News
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Ross Burden pictured in 2002
people
News
Elisabeth Murdoch: The 44-year-old said she felt a responsibility to 'stand up and be counted’'
media... says Rupert Murdoch
Arts and Entertainment
tv
Extras
indybest
Sport
Arsenal signing Calum Chambers
sportGunners complete £16m transfer of Southampton youngster
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

Data Governance Manager (Solvency II) – Contract – Up to £450 daily rate, 6 month (may go Permanent)

£350 - £450 Per Day: Clearwater People Solutions Ltd: We are currently looking...

Java Developer - Banking - London - Up to £560/day

£500 - £560 per day: Orgtel: Java Developer FX - Banking - London - Up to £560...

HR Business Analyst, Bristol, £350-400pd

£350 - £400 per day + competitive: Orgtel: My client, a leading bank, is curre...

Account Manager - (Product & Account Management, Marketing)

£26000 - £30000 per annum + Benefits: Ashdown Group: Account Manager - (Produc...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on