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Monday, 18 June, 2001, 16:44 GMT 17:44 UK
Railtrack's troubled journey
Railtrack owns the rail infrastructure and is responsible for investment
Railtrack owns the rail infrastructure and is responsible for investment
Railtrack's troubles have deepened dramatically over the past two years, with one crisis after another bringing the company to the brink of collapse.

In July, Railtrack chairman John Robinson apologised to a packed room of disgruntled shareholders for the company's "appalling year" and promised to do better.

This was followed just a month later with the axing of its chief operating officer Jonson Cox - the man it brought in a year ago in a bid to boost Railtrack's's performance.

Now the government looks poised to take the reins in the long running Railtrack saga, with reports of a major "restructuring" exercise that could signal the end of its existence as a listed company.

Under fire

Since its privatisation in 1996, the company has come under fire for making profits even though passengers suffer a poor service on a decrepit rail network.

Railtrack has had to spend massively on investment
Railtrack has had to spend massively on investment
Its unpopularity was sealed with the Ladbroke Grove and Hatfield train crashes which highlighted safety shortcomings in the network it manages.

This year it posted a loss for the first time, sending its share price tumbling and prompting its exit from the list of the UK's 100 biggest companies.

In June it was called into account for its role in the Ladbroke Grove crash, slammed for it "lamentable failure" over the circumstances leading up to the disaster.

Lord Cullen was deeply critical of the company's response to previous safety alerts prior to that accident when signals were also passed at danger.

"This activity was so disjointed and ineffective that little was achieved," he said. "The problem was not dealt with in a prompt, pro-active and effective manner."

Troubled beginnings

Railtrack, which employs 11,000 staff, has its origins in a 1992 Government White Paper, which outlined the future of rail privatisation.

This paper led to the 1993 Railways Acts, which resulted in a complete restructuring of the UK railway industry.

Railtrack owns the national railway infrastructure and is responsible for all investment into it, whether funded by Railtrack itself or by third parties.

The 28 train operating companies, who run passenger services, pay for the use of these tracks, stations and signals.

The thinking behind the creation of Railtrack was that as a listed company it could raise money from the private sector to fund investment.

Losses and investment

However, Railtrack's massive investment demands have seriously squeezed its finances and raised questions about its future, which is highly dependent on government cash.

Railtrack's Gerald Corbett left the company following the Hatfield crash
Railtrack's Gerald Corbett left the company following the Hatfield crash
This year the company reported a worse-than-expected loss of 534m, its first since privatisation.

This was due to a 733m bill for the rail renewal programme and compensation claims which followed the Hatfield crash in October.

The crash prompted the resignation of chief executive Gerald Corbett - though his first offer to quit was rejected by his board.

Railtrack still needs to raise 3bn to help maintain the rail network - expecting to plead its case for an additional 2bn of public money from the regulator, the Strategic Rail Authority.

The company has already been awarded a payment of 1.5bn from public funds - a sum it had not been due to receive until 2006.

Public/private confusion

The uncertainty surrounding such a funding formula prompted some Railtrack shareholders and many members of the public to call on the UK government to take an equity stake.

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

Investors in Railtrack have had a bumpy ride. When the company was privatised in May 1996, shares were sold at 3.80, valuing the company at 2.54bn.

Since then they have hit highs of 17 before slumping in June to just over 3.

This summer investment bank ABN Amro said the company could be worth considerably less.

"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," the bank said in a research note cited by Reuters.

"An investment case is based on the hope there will be a large transfer of wealth from the taxpayer. This requires a massive leap of faith," the bank added, rating the stock as a "sell".

Government warning

Transport Secretary Stephen Byers had also warned that Railtrack must make a "very strong case" if it wanted future government investment, though at the time said he would not rule out giving the company more money.

The company's shares were given an unlikely vote of confidence from an article in the Sunday Business newspaper.

"The government would be unlikely to pay less than the 1996 flotation price of 390p a share - nearly one pound above the current price. Everything considered, an investment in Railtrack today has more upside than downside."

See also:

05 Jun 01 | Business
Privatisation - the Railtrack way
24 Jul 01 | Business
Railtrack's 'appalling year'
02 Aug 01 | Business
Railtrack operations chief axed
05 Jun 01 | Business
Railtrack shares slump
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