Banks to cash in on railway rescue

CITY investment banks led by UBS Warburg are set to collect at least £35m in fees for rescuing the railway network from the administration imposed last autumn by Transport Secretary Stephen Byers.

The figure will soar if the network borrows more than the £9bn planned so far. That seems certain. Some £6.5bn of the initial funds raised must go to pay off debts. The banks are working on plans to raise up to £20bn. This could generate fees in excess of £100m.

The Strategic Rail Authority estimates the railways need to raise £34bn from private lenders for investment over the next ten years, and the same sum from government.

The network owned by Railtrack is being sold off to a new, 'non-profit' organisation called Network Rail. Warburg and associated banks will provide the £9bn as a bridging loan, and then refinance this through a bond issue later this year. 'Where the fees really come in is in the bond issue,' said a source close to Network Rail. 'The figure will be around £30m.' Warburgs is in line for up to one third of that. It is being paid a further £5m as Network Rail's financial adviser. The bank could not be contacted at the weekend.

The news will cause further embarrassment to Byers, who put Railtrack into administration in October, just as Allied planes began bombing Afghanistan. Travellers, investors and taxpayers have been suffering the consequences ever since.

Byers initially claimed the grab would be 'free' as shareholders would receive no compensation. Sticking to that would have made it almost impossible to borrow any new money.

Instead the Government is paying £300m to shareholders, while the public sector SRA will effectively guarantee the bonds. It has already cost taxpayers £755,000 a week in advisers' fees to keep administration since October.