and PETER RODGERS
The sale of British Rail's three rolling stock companies has netted pounds 1.8bn for the Government, which will also be repaid pounds 800m of cash by the companies as the deal goes through.
Advisers were claiming other hidden benefits for the public purse in the sale because the new owners will take responsibility for safety modifications - such as new door catches and driver's cab radios - that would have cost the taxpayer pounds 200m.
It also emerged that pounds 80m of the pounds 1.8bn sale price is being held back because of doubts over the performance of the new Networker trains.
Ministers were suggesting that the sale proceeds were more than pounds 2.5bn in total because of the cash payment but advisers admitted that the benefit to the public sector borrowing requirement would only be the pounds 1.8bn paid by the buying syndicates. This is because the pounds 800m cash is already poublic sector money.
Two of the three companies, Eversholt and Porterbrook, have gone to consortiums with management buyout teams as partners, and both are the largest deals of their kind the City has seen for years. The third, Angel, has been sold to the Great Rolling Stock company, comprising Nomura International, the Japanese securities firm, Babcock & Brown, a specialist leasing company, and the consultants Prideaux and Associates.
The successful management team at Porterbrook will take between 10 and 20 per cent of the equity, depending on performance, while the Eversholt team, which is withholding pounds 80m of the sale price until later, will hold a flat 15 per cent.
The buyout companies' new financial structure will be mainly debt, with only pounds 2.5m of equity capital in total at Porterbrook and little more at Eversholt. It is the low value of the equity that makes the share stakes affordable to the management.
Although each employs only about 50 people, advisers insisted that this financial structure would not lead to a quick bonanza for the management - like the one seen in the electricity industry - because the companies' income is fixed by contract for six or seven years ahead.
The venture capital groups backing the buyouts do not expect to sell or float them on the stock market until beyond the present contract periods. One added that political risk made it hard to be certain yet that there would be a profit on the purchase price for the management to share.
Eversholt, which despite its all-electric fleet was the most difficult to sell, appears to have been the best buy, with a price/earnings ratio of 5.2, while Angel, the only one not to go to a management buyout team, has by far the highest ratio at nearly 6.3.
The three companies, known as Roscos, own all the railway stock in use in Britain except the cross-Channel Eurostar trains.
They lease the stock, which is on average 17 years old, to the 25 train operating companies, mainly on an eight-to-ten-year basis.
The Government has tried to ensure that the leases are tailored in such a way that it will be worthwhile for the train operators to buy new rolling stock.
However, yesterday the new owners of the three companies all said it was up to the operators to decide when to order new stock.
John Prideaux, who is to chair Angel, said new orders would not be expected immediately from the operators as it was "difficult in their transitional state" since they are in the process of being privatised.
No new rolling stock has been ordered by British Rail for two years and Roger Ford, editor of Rail Privatisation News, said: "I doubt whether we'll see any new orders for at least two years, though there is a lot of enthusiasm for refurbishing trains in their mid-life."
Eight companies were shortlisted and of those only four finally put in acceptable bids, with the Nomura-Babcock & Brown team putting in offers for all three.
Comment, page 21
The buyers and their backers
Eversholt Holdings pounds 500m
Deal led by: Candover Partners
Equity investors: Candover, Electra Fleming, Alpinvest Holding, Advent Intl, BZW Private Equity, Gartmore Investment, Royal Bank of Scotland
Debt: Deutsche Morgan Grenfell, Fuji Bank, Societe Generale, Royal Bank of Scotland
Porterbrook pounds 565m
Deal led by: Charterhouse
Equity investor: Charterhouse
Debt: Bankers Trust
Angel Train pounds 672m
Equity investors: Prideaux & Associates, Babcock & Brown
Debt: Nomura IntlReuse content