Guidance has been set at 2027 Gilts plus 25 to 27 basis points, the bank said.

"We could see this one worth about 1 billion pounds and an order book of 2 to 3 billion pounds. It's a persistent programme by Network Rail to issue and investors all want a piece of the action because corporate linkers are rare and this one offers liquidity," a trader in London said.

Barclays Capital, Dresdner Kleinwort, HSBC and Merrill Lynch are managing the sale.

Network Rail last month sold the largest-ever non-government inflation-linked bond, drawing nearly 2 billion pounds of demand for a 1 billion pound 30-year issue.

Network Rail is rated triple-A by Moody's Investors Service, Standard & Poor's and Fitch Ratings.

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Network Rail may give up emergency funds

Daily Telegraph: 19/06/2007
By Alistair Osborne

Network Rail is planning to give up its right to call upon a £4bn emergency funding package from the Government in a further sign that it believes it can stand on its own financial feet.

Network Rail logo: Network Rail may give up right to emergency funds

The company, which also hopes to raise its first loans next year without a Government guarantee, was provided with the standby facility as part of a £21bn funding package when it succeeded Railtrack in 2002.

The emergency fund was described as a "contingency buffer" to "withstand extraordinary cost overruns and shocks" and was to be made available for 50 years. It was considered necessary because, as a company limited by guarantee, Network Rail did not have a buffer of shareholders' equity to protect it from financial shocks.

Giving up the £4bn facility is dependent on the regulator's determination of Network Rail's funding for the next five-year control period from April 2009, and the Government's assessment of how much railway expansion it is prepared to pay for.

This will become clearer on July 17 when the Department for Transport issues its "high-level output specification".

Network Rail, which made its first post-tax profit last year of £1.04bn, would only give up the standby facility if the regulator left it soundly financed. The company has called for almost £8bn additional funding over five years, raising the total to £28.7bn, to permit expansion of the network via such schemes as the £3.5bn Thameslink project.

Such considerations will also influence Network Rail's plans to raise billions of pounds of loans, on top of its existing £18.4bn, without a taxpayer guarantee.

Thanks to the guarantee, Network Rail can borrow at just 0.15-0.25 of a percentage point above gilts. Raising debt without the guarantee will cost 0.5-0.6 of a percentage point more, but the Government believes the extra costs are outweighed by increased financial discipline.

The guarantee has proved controversial because Network Rail's debt does not appear on the public accounts. However only new debt will be raised without a guarantee.

There are no plans to refinance existing debts without taxpayer support.