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Thursday, 11 October, 2001, 15:50 GMT 16:50 UK
City turns on government over Railtrack
Train crashed into buffers
Railtrack's flow of subsidies ran into the buffers
Leading City institutions have confirmed they are writing to the government demanding a fair deal for Railtrack shareholders.

Members of the Association of British Insurers and the National Association of Pension Funds met on Thursday morning.

They have also written to the Railtrack board asking them to leave "no stone unturned" in their bid to secure the best outcome for shareholders.

This effectively means that the biggest City fund managers are united in a battle with the government over the future of Railtrack.

Deterioration

The move marks a significant deterioration in the Labour government's relations with the City.

City insiders are understood to be furious about the government's decision to pull the plug on Railtrack, leaving several thousand investors out of pocket.

The debacle has put a question mark over the government's much-vaunted plan to attract private investment to fund public services, such as London's underground system.

Backdoor re-nationalisation

The fund managers' move came as Railtrack chief executive Steve Marshall accused the government of re-nationalising Railtrack "by the back door".

Railtrack has been placed under administration and will be turned into a not-for-profit trust, after the government cut off the flow of subsidies to the loss-making operator of the UK rail network.

Rise and fall of Railtrack
1996: Privatised. Shares cost 3.80
Sep 1997: Southall crash kills seven
Oct 1998: Shares top 17
Oct 1999: Ladbroke Grove crash kills 31
Nov 1999: 1m a day profits
Oct 2000: Hatfield crash kills four
Nov 2000: Gerald Corbett resigns as chief executive
May 2001: First loss - 534m
June 2001: Harshly criticised in Ladbroke Grove report
July 2001: Chairman John Robinson apologises for "appalling" year
October 2001: Placed into administration
"At the end of the day, what is occuring is re-nationalisation by the back door... (which) has to have a price on it otherwise you can just mug any company and take it," Mr Marshall told BBC Radio 4's Today Programme.

Mr Marshall called for the firm's shareholders to be compensated to the tune of 360p a share for giving up ownership of Railtrack's 23,000 miles of track and 2,500 stations.

"Mr Byers said a few weeks ago he was looking to re-nationalise.

"If he did it through the front door by making an offer for the shares, he would have to pay the average share price over the last three years, which would be about 8," Mr Marshall claimed.

"Own fault"

Railtrack shares traded at 280p before the government called in the administrators, but were floated at 360p when the firm was privatised five years ago.

Gwyneth Dunwoody, chair of the Commons transport sub-committee, told financial PR company Cantos that the company's failure was its own fault.

"This is a company which has been operating with no government control, just money, and now it's saying its decisions were wrong," Ms Dunwoody said.

Railtrack Group itself, which is the parent company of Railtrack, has not been put under administration.

Compensation offer

On Wednesday, the government had offered collapsed Railtrack to distribute 370m to out-of-pocket shareholders, after the company threatened legal action to unlock the funds.

Steve Marshall, chairman of Railtrack Group
Steve Marshall calls the government's action "shoddy"
This would add up to 70p per share in compensation for Railtrack investors.

But the government has stressed that shareholders will not be compensated out of the public purse.

The cash was frozen by Railtrack's bank HSBC amid confusion over who actually owns the company's assets following its collapse.

"It's a matter of opinion, (we have) 370m in cash and the channel tunnel rail link.

"The network is in administration, the question is what is a reasonable value when it is transfered back to the government or other vehicle," said Mr Marshall.

Transport Secretary Stephen Byers said: "We will assist in identifying ways in which money belonging to Railtrack Group might be made available to shareholders, but we will not provide extra funding from the taxpayer to compensate shareholders."

Special case

Normally when companies go into administration cost-cutting is the first order of business.

Administration is meant to give a company time to renegotiate with its creditors, in the hope of preserving the core of its operations as a going concern.

That normally involves mass layoffs. In any case, shareholders normally have to join the back of the queue for cash.

But Railtrack is being treated as a special case.

It is under a "railway administration order", a never-before-used legal instrument which prevents Britain's rail infrastructure from being broken up and sold off.

Under the Railways Act of 1993 it is designed to make sure the rail infrastructure keeps running. Unlike normal administration, closure is not an option.

Boosting compensation

But Railtrack says it will not rest until compensation levels have been boosted up to 1.6bn or 360p a share, slightly below Railtrack's 1996 float price.

Railtrack has about 250,000 shareholders.

When the company was put into administration at the weekend it seemed unlikely that they would get any of their money back.

Some have threatened to sue the government over its decision not to rescue the signal and rail operator from its cash crunch.

Some insiders say the government, by failing to make sufficient investor announcements, broke London Stock Exchange rules when winding up the company.

Railtrack's row with the government stems from the fact that it is only the railway business, Railtrack plc, that it is in administration, and not the parent firm, Railtrack Group.

 WATCH/LISTEN
 ON THIS STORY
The BBC's Tom Symonds
"The government does not want to compensate shareholders directly from public funds"
Steve Marshall, chief executive of Railtrack
"Railtrack can only exist with government support"

Key stories

Background

Safety crisis
 VOTE RESULTS
Should Railtrack's shareholders be compensated?

Yes
 33.04% 

No
 66.96% 

4719 Votes Cast

Results are indicative and may not reflect public opinion

See also:

09 Oct 01 | Business
Profile: The Railtrack salvage squad
08 Oct 01 | Business
Rail users promised 'fresh start'
08 Oct 01 | Business
Railtrack in administration
05 Aug 01 | Business
Railtrack may axe managers
02 Aug 01 | Business
Railtrack operations chief axed
23 Jul 01 | Business
Railtrack funding under threat
24 May 01 | Business
Railtrack reports massive loss
07 Oct 01 | Business
Railtrack privatisation 'flawed'
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