The railway, Europe's largest by number of passengers and track length, may sell up to 35 percent of its shares in an initial public offering or to an investor, Mehdorn said in Berlin yesterday. Chancellor Angela Merkel's cabinet will vote on the plan July 24 after debate over track ownership held up the process since November, he said.

An amendment to the Constitution needed for the sale "will probably be made this year so that 25 to 35 percent of the shares could be placed in the market,'' Mehdorn told reporters. "We have consistently prepared the way to go to capital markets and we're ready.''

Supported by Transport Minister Wolfgang Tiefensee, Mehdorn says he needs more funds as soon as possible to expand in Germany and Europe in order to exploit an export boom and the growing popularity of climate-friendly transport. Deutsche Bahn has invested about 90 billion euros ($124 billion) since 2000, some 40 percent of it from taxpayers, the Transport Ministry says.

Investment and acquisitions have already helped swell Deutsche Bahn's debt to 19 billion euros.

Rating agency Standard & Poor's on Feb. 5 said Germany's plan to sell a stake in the railway may lead to a downgrading of Deutsche Bahn's bond rating depending on the government's "willingness, mechanics and ability to provide timely support'' to the company after a sale.

Government Stake

Germany's government has omitted a potential sale of a stake in Deutsche Bahn from its 2008 budget, said Finance Ministry spokesman Stefan Olbermann in an interview yesterday. Surging tax revenue is helping the government narrow its spending deficit without the support of asset sales, he said.

"There's no hurry to sell in 2008 from our point of view,'' Olbermann said.

Mehdorn has said the company's return to profit supports its plan to find investors. Rising passenger numbers and freight may push pre-tax profit to 2.5 billion euros this year from 2.1 billion euros in 2006, said Chief Financial Officer Diethelm Sack on May 22.

The forecast doesn't take into account a 4.5 percent pay increase deal forged on July 9 between the company and the Transnet rail union's 134,000 workers. The agreement, following warning strikes, is the biggest ever post-war pay rise, Mehdorn said.

Initial Public Offering

The company will share proceeds from an IPO with the government, management board member Otto Wiesheu told reporters yesterday, without giving details. Deutsche Bahn is confident of strong investor interest even though the government decided to maintain legal ownership of the track network after a sale, he said.

Economy Minister Michael Glos rejected Mehdorn's plan to sell a stake in 34,000 kilometres (21,100 miles) of track as well as railway stations. Glos objected on grounds that taxpayers will continue to pay about 2.5 billion euros every year for track maintenance and concern that competition would suffer if a private investor co-owned track and property.

Justice Minister Brigitte Zypries is seeking legal assurances that a sale will not dent government influence over the railway system that is guaranteed by the constitution which bars the sale of more than half the company's shares.

The ministers agreed on June 28 to allow the railway to run its track and property for 15 years, reporting the assets in annual statements before returning them to the government.

German lawmakers still have to approve the Cabinet's plan to sell a stake in the railway. They return from summer recess on Sept. 10.

See also:

Deutsche Bahn expects partial privatisation in 2008 - part of proceeds to be reinvested

Thomson Financial: 07.13.07

BERLIN - Deutsche Bahn AG expects to be able to launch a partial initial public offering in the first half of next year following a positive development of its business in past months, chief executive Hartmut Mehdorn said.

The rail operator expects the German government, which owns the company, to make preparations for the IPO before the end of this year, he said.

Initially, some 25-30 percent of Deutsche Bahn could be privatised, with part of the proceeds being reinvested into the company.

The government will definitely retain a majority stake in Deutsche Bahn, Mehdorn said, brushing off speculation financial investors may seek to buy up the company.

In the first five months of this year, the company's results improved year-on-year, Mehdorn said, without giving specific figures.

Deutsche Bahn last year posted record net profit of 1.7 billion euros.