Stakes raised in rail sell-off

BY RUSSELL HOTTEN

and PETER RODGERS

The government has ensured massive international interest in the sell- off of British Rail's rolling-stock by suggesting the size of the sale and profits to be made will be much bigger than first thought.

Transport sources said that a decision to lease the rolling stock on longer fixed terms was intended to push up the value of the sell-off to between £2.5bn and £3.5bn.

Of the many potential values placed on the three rolling stock leasing companies (Roscos), investors were settling on around £1bn-£2bn in total.

But the first formal details of the sale released yesterday by Hambros, adviser to the government, indicates a higher value because of the size of the Roscos' guaranteed contracted cash flow.

Each Rosco owns between 3,400 and 4,200 vehicles, slightly higher than expected. Many of the trains are on leases under eight years, but the government intends to lease all of them to the 25 passenger franchise companies on fixed 10-year terms.

Hambros said that contracted leasing revenues for each Rosco is approximately £230m and £290m a year. The bank would not discuss the anticipated size of the sell-off - but government sources said that the Department of Transport is working on the assumption that each Rosco will generate a cash flow of about £1.2bn over the 10 years. One potential investor, who originally put the total value of the three Roscos at no more than £750m, said: "That's a surprise. It will make more investors sit up and think.''

Roger Mountford, director of Hambros, said 373 companies had been approached about investing in the Roscos, and this week the firm's advisers fly to Japan and America to drum up further interest.

It is thought that GE Capital, the giant US finance house, is a likely bidder. In the UK, Barclays and NatWest are also said to be serious contenders, as is HSBC, the Midland parent.

Management buy-out offers are being prepared and engineering companies such as ABB - which is one of Europe's major railway equipment manufacturers - are thought to be interested.

But doubts remain about the sale. All three Roscos will have leases with all 25 passenger franchises, which one critic in the City said was ``a recipe for an administrative tangle.''

He said: "Three Roscos were created because the government did not want to create a monopoly. The allocation of rolling stock to the franchises is completely arbitrary.'' There was also concern among investors that the whole thing was susceptible to a change in government and political will.

Dr Brain Mawhinney, transport secretary, dismissed such suggestions, saying that the sale was a unique investment opportunity. "It is the first step in creating a competitive market for the supply of passenger trains. Privatisation will give the Roscos access to the world's financial markets and set them free to develop new services and finance investment in Britain's passenger trains in innovative ways.''

Hambros also announced yesterday that the supply of spare parts will be sold off as two separate concerns with the Roscos each having a stake.

The rolling stock was transferred from British Rail to the Roscos - Eversholt, Porterbrook and Angel - in April 1994. .