“Angel Trains has made nearly half a billion in pre-tax profits over the last five years alone, and now it is cashing in the business for another obscene sum

“The very idea of a train-leasing market is absurd, and has been used as yet another way of transferring huge sums of taxpayers’ and fare-payers’ money out of the industry into private shareholders’ pockets.

“These companies make profits at a rate that would make the Cosa Nostra blush, and it’s not before time that the train-leasing companies have been referred to the competition commission for investigation.

“Every penny going into rolling stock procurement should be spent on beating overcrowding and increasing capacity, but privatisation has turned rolling stock into yet another cash cow.

“This is yet another argument for the renationalisation of the entire industry.”

See also:

Angel Trains' owners may pay price for costly leases

The Times: June 14, 2008
Angela Jameson, Industrial Correspondent and Paul Larter

Royal Bank of Scotland (RBS) completed the first piece of its cash-raising programme yesterday by selling Angel Trains, the train leasing business, to Babcock & Brown European Infrastructure Fund for £3.6 billion.

The deal is a key component of RBS’s dash to raise further capital after completing its £12 billion rights issue this week. However the new owners could be forced to sell parts of the Angel business within months if the Competition Commission decides that prices for leasing trains are too high.

The Commission ruled last December that there was evidence that prices in the rolling stock leasing market were too high and singled out Angel Trains, the biggest operator, which has about 40 per cent of the market.

Speaking on behalf of a consortium of investors, Simon Gray, head of European Infrastructure M&A at Babcock & Brown, said: “We have made very conservative assumptions for this business and planned for all the outcomes. We don’t think that Angel has been making excessive profits and it may well be shown that they have provided good value for money.”

Babcock & Brown had to enlist 17 banks to raise the £2.8 billion debt it needed to buy Angel. RBS, which is exiting the industry after 11 years, is one of the banks providing long-term debt. Mr Gray said: “We are seeing a reluctance by banks to put up their balance sheet to underwrite deals. Instead of going to one or two banks, who would syndicate the debt to others, we had to go to a much larger group.”

He added that it was not surprising to see RBS continuing as a lender to the new owners: “There would have been concern if they hadn’t been.”

The sale of Angel Trains has been a critical part of RBS’s plan to shore up its finances and focus on its main banking business. It is also understood to be selling its insurance businesses – Direct Line and Churchill – for about £7 billion.

Analysts believe the bank will make a profit of £250 million to £300 million on the sale of Angel Trains after the consortium, which includes Deutsche Bank, Access Capital Advisers, and AMP, the Australian specialist investor, secured the deal for less than the expected £4 billion. RBS bought Angel Trains in 1997 for £408 million.

One of three national “roscos” [rolling stock leasing companies], it provides 4,100 passenger train vehicles and 280 freight locomotives to passenger and freight operators in the UK and Europe. Its customers include 18 of the UK’s 20 train operating companies and it has fleets with South West Trains and Virgin West Coast. It also has a significant order book to build passenger trains, locomotives and wagons, including new Pendolino carriages for routes from London to Glasgow through Manchester.

Angel was created in 1994 in advance of the privatisation of the UK’s rail network and is the biggest of the UK’s three train leasing companies. Its rivals are HSBC Trains and Porterbrook which are owned by high street banks HSBC and Abbey respectively.

Angel’s buyers hope to capitalise on a growing rail market that has seen passenger numbers rise by 50 per cent and freight traffic up 60 per cent in the past decade, as well as benefit from new European rules on open access.

Rob Gregor, the head of European infrastructure at AMP Capital, said: “We believe that the liberalisation of the European market and government investment in the UK mean that this is an exciting time to be investing in the UK and European rail sectors.” Despite the impact of the credit crunch, a spokesman for Babcock & Brown said that it secured debt for the deal on “competitive” terms. Infrastructure assets are seen as a safer bet by investors in the current turmoil.

The Babcock & Brown European Infrastructure Fund owns 22.2 per cent of Forth Ports and a stake in Brisa, a Portuguese toll road company. The fund, which closed in November last year, raised €2.2 billion (£1.7 billion), which it will gear up to take long-term stakes in European infrastructure assets.

The fund is ring-fenced from its parent company, which is listed in Australia. The parent company saw its shares fall again yesterday, compounding heavy losses earlier in the week.

The decline in Babcock’s share price has taken its market value below a level set by its lenders that would trigger a review of its debt agreements. Babcock has said that reaching the review limit does not mean it would have to repay or speed up repayment of its A$2.8 billion (£1.35 billion) in debt, due by 2011.

The sale of Angel completes a busy week for RBS, whose £12 billion rights issue was backed by more than 95 per cent of its shareholders on Monday.