City cagey over Son of Railtrack

THE debt markets think the planned successor to Railtrack will probably get their support. But few bond analysts buy the Transport Secretary's argument that the company, dubbed Newtrack, will be able to make better use of its cash because it has no shareholders. Railtrack and its shareholders also reiterated their scepticism.

Debt analysts said the risks are reduced by the Government's decision to provide a financial cushion against crashes and its plan for new projects to be managed by specially set-up companies. As a result, Newtrack will be more likely to win an investment grade credit rating - important to cut its borrowing costs. 'It is a step in the right direction, but we need a lot more detail,' said one bond analyst.

Because the Government is seeking to raise a hefty £30bn over 10 years for rail upgrades, it will need the debt to be rated higher than BBB - the last rating above 'junk' bonds.

Jens Jantzen at broker Bear Stearns suggested savings from not having shareholders may be as low as £35m-£40m. 'You cannot justify the change on the basis of cost savings.'

Byers confirmed Newtrack will have 12 to 15 directors, reporting to a variety of industry stakeholders.

He will put his plans to the administrator, who will also consider other proposals, including a bid by WestLB, the German bank reportedly prepared to offer 240p a share for Railtrack.

But, since Byers has to approve any change of ownership of the network, he will be setting out guidelines on what may be acceptable to the Government. Byers' department has agreed in principle to meet WestLB - which is encouraged by his latest statement.

Shareholders, who have been unable to trade their shares since Railtrack was put into administration, said they were disappointed with the statement, which gave no assurances on compensation.

Railtrack chief executive Steve Marshall reiterated his doubts that the new structure will deliver any material gains. This was echoed by Opposition MPs, who said the Government will end up spending £300m more on Railtrack's replacement than on the doomed company itself.