Railtrack shares slump on talk of rights issue

Shares in Railtrack slumped to a two-year low yesterday after the company warned that it might be forced to launch a rights issue to fund its massive investment programme.

Shares in Railtrack slumped to a two-year low yesterday after the company warned that it might be forced to launch a rights issue to fund its massive investment programme.

The remarks by Gerald Corbett, Railtrack's chief executive, helped to drive the shares down by another 3 per cent to close at 843p - their lowest since November, 1997. Fears of a tough price review from the Rail Regulator, Tom Winsor, also weighed on the company.

Railtrack had been planning to invest £27bn over the next decade to meet a 30 per cent growth in rail traffic. But it now estimates it may have to spend £35bn-£40bn to support a 50 per cent rise in passenger numbers.

Tackled on BBC1's "On the Record" programme last weekend about how this increased investment would be funded, Mr Corbett said: "We're going to have to borrow a lot more and we may have to raise share capital."

Mr Corbett's remarks took the markets by surprise since it is highly unusual to issue new shares in order to fund ongoing capital investment programmes.

Mr Corbett also highlighted the huge regulatory and political risk which had helped drive down its share price, saying it was like being "in the middle of the Bay of Biscay in a force 10".

The incessant criticism of Railtrack from all quarters - rail regulators, consumer groups, health and safety authorities - and the declining share price have raised question marks over the future of Mr Corbett. But one Railtrack non-executive director said Mr Corbett had the "100 per cent backing" of the board.