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Thursday, 7 June, 2001, 09:05 GMT 10:05 UK
'Renationalise' say Railtrack investors
Rail tracks
The government is not keen to buy
Leading Railtrack shareholders have called for the UK government to take an equity stake in the beleaguered rail infrastructure firm, a report has said.

Investors quoted by the Financial Times newspaper say such a move by the government would clarify its role in the company and aid its recovery.


You could have a situation where the government says 'for the money we're putting in, we want an equity stake in Railtrack, say a 20-25% stake'.

David Rough
Legal & General
The government has been pouring vast sums into the firm, whose shares slumped more than 20% in trading on Tuesday and Wednesday, to bail it out of trouble.

The recent falls in its market value ensured Railtrack was thrown out of the FTSE 100 index of leading shares when the index compiler carried out its quarterly rejig.

"You could have a situation where the government says 'for the money we're putting in, we want an equity stake in Railtrack, say a 20-25% stake'.

"If Railtrack then does recover and does produce the goods, the public, who'll be helping to finance it, will actually see some upside," Legal & General's head of investment, David Rough, told the newspaper.


We think their regulatory asset base has a value substantially higher than the market is according it.

Richard Hanna
Deutsche Bank
"I would see the government coming in as a shareholder as positive rather than negative. It would be saying the government's now on-side and it understands what its role and responsibilities are."

Another leading investor quoted by the newspaper said active ownership by the government "would help find a bottom for valuation and remove the uncertainty going forward".

Rising debts

The news comes as the credit ratings agency Moody's Investors Service said the recent falls in Railtrack's share price would not lead to its debts being downgraded.

With Railtrack set to raise about 4.5bn over the next five years, its credit rating is crucial in ensuring debt is raised at the minimal cost.

Trouble in raising cash could put the firm's current rating under pressure.

Equity analysts have found the firm difficult to value because of its status as an unofficial public private partnership

There is some certainty that the government will act to bail the company out of trouble, but nobody knows where the buck stops.

The recent sharp falls in Railtrack's share price followed a report by the investment bank ABN Amro valuing the stock at only 58p, the equivalent of a 300m price tag for the company.

Railtrack was privatised five years ago at 390p a share.

They said investors would be taking a "leap of faith" by investing in Railtrack because of the company's operational and funding problems.


We believe there is a realistic possibility that the equity could be wiped out. Based on our expectations of performance, we value the shares at only 58p.

ABN Amro

But Deutsche Bank reiterated its "buy" recommendation on Wednesday and maintained a target price at 650p.

"We think their regulatory asset base has a value substantially higher than the market is according it," said Deutsche Bank's transport analyst Richard Hanna in a briefing note.

Even though there were political and regulatory obstacles, the broker noted that the shares were "highly oversold".

 WATCH/LISTEN
 ON THIS STORY
The BBC's Brian Milligan
"Some in the city say the most logical step is to take the company back into public ownership"
See also:

06 Jun 01 | Business
Railtrack shares claw back losses
05 Jun 01 | Business
Railtrack shares slump
05 Jun 01 | Business
Privatisation - the Railtrack way
24 May 01 | Business
Railtrack reports massive loss
04 Apr 01 | Business
Railtrack share collapse continues
15 Jan 01 | Business
Railtrack under pressure
04 Jun 01 | Business
Rail companies play the blame game
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