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Tuesday, 5 June, 2001, 14:25 GMT 15:25 UK
Privatisation - the Railtrack way
Declan Curry's graphic
Shares in Railtrack have plunged to a historic low of 364.5p after investment bank ABN Amro said the company was worth as little as 58p a share. BBC Breakfast's shares reporter Declan Curry looks at the network operator's track record.

OK, remind me again. What was the point of privatisation?

At the time, we were told that it would spark competition and improve customer service. Well, there aren't too many people who think that's happened on the railways.

So what about that other bold claim? That it would let state-owned industries get their hands on money from the markets, simultaneously ending under-investment and the drain on the public purse.

Fat chance. Railtrack is still a subsidy junkie, and is looking for a bigger fix each time.

Since the Hatfield disaster, it has already helped itself to 1.5bn of taxpayers money, brought forward from 2006. Now it's asking for another 2.6bn.

It looks like a demand for money with menaces. The call for taxpayers' cash comes in the heat of an election battle over the quality of public services.

It's difficult for ministers to ignore the pleading when it's underpinned by the not-too-subtle threat that if the cash isn't paid, Railtrack may go under and the chaos in railway industry will get worse.

It makes Railtrack a private company like no other.

Cash wheeze

Any other stock market listed company that needs cash knows where to get it - from the bank, from the debt markets, from its shareholders... or in the worst cases, from rivals eager to buy up some of its assets.

Even the mighty BT, which itself hails from the same state-owned stable as Railtrack, had to sell some of its Asian silver, and pass the begging bowl around its shareholders when it found itself strapped for cash after its 3G spending spree.

And as scores of dot-com entrepreneurs will tell you, when a listed company hits a financial wall, it goes bust.

But not Railtrack. It has a unique capital raising wheeze - the cry of "stand or deliver".

So why can't Railtrack follow BT's example, and tap its shareholders for the cash it needs through a rights issue?

Just ask yourself this question - would you buy a second hand share from this company?

Sold up

Very few of the big institutions in the City would part with their cash for cheap new Railtrack stock. In fact, many of the City's biggest players have already sold up.

David Manning, who heads up the UK investment side of Foreign & Colonial, one of the UK's biggest pension fund managers, sold all the fund's Railtrack shares six months ago.

They don't like Railtrack because anyone who invested in the company over the last two or so years has effectively lost their shirt.

The share price has fallen by nearly 70% since last October, and even the sweet aroma of a sturdy dividend a few weeks ago didn't do much to revive the patient.

More government funds?

The deeper problem is the cash-in-hand.

There's a fear that Railtrack could have difficulties funding its day-to-day activities unless it gets another injection of money from somewhere.

The snag is this - without any further public subsidy it needs to go to the markets, but the markets won't pay up until it gets a public subsidy to stabilise its finances.

And secretly, the markets bet that if they hold back, the government will be blackmailed into paying out again, no matter how reluctantly.

ABN wake-up call

Which is why the analyst report from ABN Amro has sent the share price into such a steep slide.

It's like the Emperor's New Clothes.

Even though most teams of analysts who have a view think the Railtrack stock is still worth buying (seven say buy, four say hold, three say sell), the report from the ABN team has raised the possibility that ministers would refuse any further payouts, no matter how loudly Railtrack bosses squeal.

No money from the government also means no money from the markets, and then Railtrack would really be in a pickle.

It would be shut out from fund raising in the share market and the company debt market distrusts the firm too.

Selling the shopping centres

The only option left would appear to be asset sales.

Railtrack is a major property company in its own right. For starters, it owns the country's biggest train stations, both in terms of their land and the air rights above them.

Shopping centres like those at London's Victoria station are handy little earners, and the government hinted last weekend that the company could be forced to sell off its property portfolio after the election.

Railtrack had better hope that it would be enough.

But isn't it odd that Railtrack is facing danger because of a threat to make it operate like a truly commercial company?

And to make it run like a railway, rather than a property, company to boot?

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See also:

05 Jun 01 | Business
Railtrack shares slump
24 May 01 | Business
Railtrack reports massive loss
04 Apr 01 | Business
Railtrack share collapse continues
15 Jan 01 | Business
Railtrack under pressure
17 May 01 | Business
John Robinson - a profile
15 Jan 01 | Business
Hatfield costs Railtrack 580m
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