Posted on 05-03-2010 at 06:00
The bank’s decision to auction off its rail division now — after shelving a sale in 2008 — signals a significant improvement in the buyout market, which has been bolstered by new bank lending recently.
Private equity insiders said that Bridgepoint’s £955 million sale of Pets at Home to KKR last month was a turning point in the buyout market, which froze when banks stopped backing highly leveraged acquisitions in 2008.
While infrastructure deals have held up much better than private equity transactions since the credit crunch, asset prices have been muted. BAA lost £277 million on the forced sale of Gatwick last year.
HSBC’s own advisory arm and NM Rothschild, which was brought in when the bank first tried to sell its rail business, have been appointed to run the sale.
HSBC Rail owns a third of Britain’s rolling stock and is one of three train leasing companies that passed into private hands during the 1990s. It hopes that the rail unit, which has a fleet of more than 4,000 trains, will fetch close to book value.
The sale of the train leasing business comes as the rail industry braces itself for a period of belt-tightening in public spending during which many expect to see purchases of rolling stock cancelled or at least deferred. If a sale goes through, HSBC Rail will be the third train leasing company to be sold in the past two years.
The train leasing business’s steady cashflows and long-term contracts could appeal to private equity firms and infrastructure funds, although specialist infrastructure funds have been more particular about which assets they will back in recent months, with riskier buyouts rejected.
The Department for Transport orders carriages but the train leasing companies buy them and then leases them to the operators for regular fees.
Macquarie and JPMorgan’s infrastructure funds are understood to be looking at the business, while private equity company Star Capital has also said that it intends to bid for the group.
Star Capital is advised by Rick Haythornthwaite, although Network Rail, of which he is the chairman, has little contact with rolling stock leasing companies. Mr Haythornthwaite confirmed yesterday that he had no involvement in any rail-related deal that Star may consider.
Infrastructure bankers said that the crucial decision for HSBC would be whether it would provide staple financing for the sale, available to all bidders and funded at least in part with the bank’s own money.
The Department for Transport said earlier this month that a £1.2 billion contract for new carriages on London’s troubled Thameslink route would not now be awarded until the summer, amid fears that a Conservative government could rip up all commitments to rail projects.
There are also doubts over a £7.5 billion contract for new trains for the East Coast Main Line, which has been in negotiation with Agility Trains — a consortium including Hitachi, John Laing and Barclays — for a year.
Hitachi has shortlisted sites in Sheffield, the East Midlands and the North East of England for a potential assembly plant but will not make any commitment until it has received a firm order from the DfT.
HSBC first appointed NM Rothschild to look at the sale of its rail unit in 2008 but those plans were derailed by the credit crisis.
Two other train leasing companies were sold by banks in 2008, before the financial crisis worsened. Royal Bank of Scotland agreed to sell Angel Trains in June 2008 to a consortium lead by Babcock & Brown, now Arcus Infrastructure, for an enterprise value of £3.6 billion.
This was followed by the sale of Porterbrook by Abbey National, now part of Santander, to a consortium of Deutsche Bank, Lloyds TSB and BNP Paribas for £2 billion.
? A national high-speed rail network would boost the economy by up to £29 billion a year by 2040 and create as many as 42,000 jobs. The railway, which would cost tens of billions of pounds, could boost annual tax receipts by £10 billion by 2040, a report by KPMG said.
Jim Steer, director of Greengauge 21, a not-for-profit company that commissioned the study, said its findings showed that the Exchequer would win big returns from any investment in high-speed rail.
Lord Adonis, the Transport Secretary, is likely to endorse the first stage, from London to the West Midlands, next month. Construction would begin in 2017.
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