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Red faces over British rail privatisationCRITICS of Britain's rail privatisation enjoyed another field day last week. First it was the story from Stagecoach, the bus company which took over the franchise to run South Western trains, one of the busiest commuter links into central London. South Western was sorry but it had to temporarily cancel 39 services a day because reorganisation of staff - which had meant 70 redundancies - had left insufficient competent drivers. By way of atonement the company offered free travel for one day, but still faced sanctions against it from the industry watchdog, the Office of Passenger Rail Franchising. Then came the deal of the week. A rolling stock leasing company, Eversholt, which was privatised for an investment of just £70-million in January 1996, was taken over to give its managers and their backers a return of £453-million. It meant more work for the National Audit Office, which is looking into the sale of another privatised train leasing group, Porterbrook, which made millions for its management even more quickly when it was acquired by Stagecoach last year. Porterbrook yielded £33-million for £150 000 in equity raised by its managing director, some £30-million for three other executives, £19-million for 43 employees and £30-million plus for their City backers, Charterhouse investment bank. What the government sold off for £27-million returned a capital gain of 60%, making even the wildest investment dreams look tame. Eversholt has proved another winner in terms of yield. Four directors and 66 staff raised £401 000 and seven institutions put in £69,6-million. They all did phenomenally well when Forward Trust, part of the Hong Kong Shanghai Bank group, stitched up its £788-million bid (the total includes £335-million in debts).
Mindful of the foaming at the mouth over privatisation "fat cats", the winners were quick to point out that they might have been risking their all if things had gone wrong. And even the bidders, Forward Trust, revealed that they originally decided against investing in Eversholt because of the uncertainties. None of the train services had yet moved into the private sector, for instance. Yet for the jackpot lightning to strike twice in the train leasing business, suggests that the Treasury was badly advised on disposal prices. Candover Investment, one of the backers in Eversholt, was at pains to point out there had been "a sea change" in the rail industry. But clearly that dramatic switch in the outlook must have been apparent within a few months - if not weeks - of the companies being sold off. For example, 80% of Eversholt's income from its customers, the train service franchisees, was guaranteed by the government for six years. And its first "free" year saw it making £123-million before tax on sales of only £219-million. Even if there were risks, a pre-tax profit equal to 175% of the equity price was taking care of a lot of the potential downside. The National Audit Office's judgment is awaited with extreme interest.
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