“At some point, we have to consider whether now is the right time [to proceed with the sale]”, said Peer Steinbrück, the German finance minister, on Monday.

The decline in equity prices has brought to a head a long-simmering disagreement between the German government and the banks acting as global co-ordinators – Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS – about the valuation of Deutsche Bahn Mobility and Logistics (DBML).

Berlin has already earmarked privatisation takings of up to €6bn for the federal budget and as new capital for Deutsche Bahn, the state-owned railway company that will continue to control DBML and Germany’s 34,000km of railway network.

The banks have been pushing the government to consider a price of below €5bn for its quarter-stake in DBML, arguing that investors would not pay more, and that the co-ordinating banks could be saddled with unwanted, overvalued stock.

People familiar with Mr Steinbrück’s thinking said no decision had been taken, but that it was useful to signal – both to potential investors and the banks running the sale – that Berlin was not chained to the public offering set for October 27.

People close to the process said Mr Steinbrück had now voiced publicly what his officials had been saying privately for weeks: If the banks could not guarantee the kind of sum Berlin expected, Germany’s largest privatisation in eight years would be postponed.

Such a move could derail the project for the foreseeable future.

Even if financial markets were to calm down in the coming months, a stock offering early next year would, for many in government, come too close to the national election in September 2009.

Should the next government still want to pursue the project, it would again have to ask the German parliament for permission – a fraught process given popular distrust of privatisation and deregulation, widespread even before the banking turmoil struck.

See also:

Germany may pull rail sale

JOURNAL of COMMERCE: October 7, 2008
Bruce Barnard

The German government is mulling delaying the partial privatization of Deutsche Bahn, Europe’s biggest rail freight operator, scheduled for later this month amid growing turmoil on global financial markets.

“At some point, one has to consider whether now is the right time [to continue with the privatization], Finance minister Peer Steinbrueck said.

The government was hoping to raise 5-6 billion euros [$6.8-8.1 billion] from an initial public offering of 24.9 percent of DB Mobility Logistics, Deutsche Bahn’s freight and passenger unit, on Oct. 27.

Part of the proceeds were earmarked for investments by DB Schenker, Deutsche Bahn’s forwarding subsidiary.

Deutsche Bahn Chief Executive Hartmut Mehdorn on Oct. 2 said there was healthy interest in the planned offering despite the turmoil in financial markets. "The time frame is set.There is no need to change it,” he said.

But doubts about the timing have grown following sharp declines in stock prices around the world, accelerated in Germany by the government’s 35-billion euros [$47.8-billion] emergency bailout of Hypo Real Estate, the country’s second-largest mortgage lender.

Deutsche Bahn executives are due to meet finance ministry officials on Thursday to discuss the price range for the stock offering and the potential proceeds from the sale. Analysts have scaled back their estimates to around 5 billion euros, prompting speculation the government might pull the flotation.

See also:

Minister raises doubts over German rail IPO

Associated Press: October 6, 2008

BERLIN: Germany's finance minister raised doubts Monday over plans for a partial initial public offering this month of Deutsche Bahn AG, which operates the country's railways.

State-owned Deutsche Bahn last month said it plans to go ahead with the IPO — in which 24.9 percent of its passenger, cargo and logistics divisions will be sold — on Oct. 27, despite volatility on the markets.

Since then, the global financial crisis has made its effects felt more strongly in Europe, with several countries moving to guarantee bank deposits and Germany shoring up distressed lender Hypo Real Estate AG.

Finance Minister Peer Steinbrueck said it was necessary to consider "whether now is the right point in time" for the Deutsche Bahn IPO.

Steinbrueck said preparations were continuing on schedule, but "the time will come to decide whether we complete the process now or pull out a plan B." He did not elaborate.

Some German lawmakers have argued against going ahead with the IPO now given the high degree of uncertainty in financial markets.

See also:

Germany Should Halt Railway IPO as Crunch Widens, Lawmakers Say

Bloomberg: Oct. 6
By Andreas Cremer

The German government should delay a planned sale of state-owned railway Deutsche Bahn AG as the deepening credit crunch curbs demand for the stock and limits the price investors may be willing to pay, lawmakers of Chancellor Angela Merkel's ruling Christian Democrats said.

"Given market developments, I'm skeptical whether October or November is the right point of time for a share sale,'' Dirk Fischer, transportation spokesman for Merkel's party in the lower house of parliament, said in an interview.

Deutsche Bahn will stick to plans to sell its train operations on Oct. 27, though "the market will be the decisive factor'' for any decision to press ahead with the IPO or cancel the project, spokesman Oliver Schumacher said today.

Germany is seeking to lure investors and money managers to Europe's biggest initial public offering this year as equity markets around the world plunge. The yearlong credit market seizure caused bank bailouts to spread through Europe, leading Europe's Stoxx 600 to lose 7 percent, the biggest intraday decline since Oct. 20, 1987.

"Of course, one must follow those developments very closely,'' Klaus Lippold, head of the German parliament's transportation committee, said. "Should it become clear that the railway can't be sold for more than a euro, then one may have to rethink the project,'' said Lippold, who is also a lawmaker of Merkel's Christian Democrats.

Budget Impact

Finance Minister Peer Steinbrueck, whose budget would reap no more than a third of gains from the share sale, has also cast doubts about the project, the Financial Times Deutschland reported today. The government is questioning whether "now is the right time'' for the IPO, the newspaper quoted Steinbrueck as saying.

Berlin-based Deutsche Bahn bundled its train divisions into a new unit, DB Mobility Logistics AG, in May in preparation for the sale of a 24.9 percent stake. The government estimates the IPO will raise 5 billion euros, two-thirds of which would be used to increase the railway's capital and upgrade infrastructure. The parent company and its track, stations, and communications will remain wholly state-owned.

"One should seriously consider to postpone the IPO rather than selling Deutsche Bahn at a loss,'' Peter Hettlich, deputy head of parliament's transportation committee and a Green Party lawmaker, said by phone. "In such an evil market environment, it would be utterly irresponsible to see this thing through.''

See also:

D.Bahn, govt to mull IPO price range Thursday

Reuters: October 7 2008

FRANKFURT/BERLIN - Deutsche Bahn AG will get an initial indication on Thursday of the price range for its planned flotation, allowing a decision on whether to go ahead with the IPO, banking and government sources familiar with the situation said.

Deutsche Bahn executives are due to meet with the government steering committee for the IPO on Thursday to discuss the price range and analyse the potential proceeds for the public purse, a government source said on Tuesday.

Deutsche Bahn and the Transport Ministry declined to comment, but doubts about the timing of the part-privatisation of the rail operator have grown amid sharp falls in share markets around the world.

The IPO would be Germany's biggest stock market flotation in eight years.

German Finance Minister Peer Steinbrueck on Monday questioned the launch of the Bahn's transport, logistics and service business unit, now set for Oct. 27. "At some point one has to consider whether now is the right time," he said.

A Deutsche Bahn responded by saying there had been no negative signs from the market so far and that investors were looking for safe assets.

Deutsche Bahn board member Georg Brunnhuber told Reuters demand for shares was strong, notably among institutional investors, and said there was no reason to put off the IPO.

BROAD INTEREST

"There's no reason for a delay," said Brunnhuber, a member of Chancellor Angela Merkel's conservative Christian Democrats. "According to my information, demand for Deutsche Bahn shares is even higher than the supply."

Brunnhuber said he had recently discussed the matter with Merkel and had not detected any inclination on her part to delay the flotation. He criticised Steinbrueck, saying the minister's comments had caused unnecessary uncertainty.

Sources from the banking consortium handling the IPO have said investor interest is broad-based and sustained but bidders are likely to demand a price discount because of the financial market ructions.

Analysts have progressively scaled back estimates of what they expect the IPO to raise to as little as 4 billion euros ($5.4 billion), from up to 8 billion euros originally.

Since announcing the IPO date on Sept. 26, Deutsche Bahn has been adamant the IPO would go ahead in October as planned. The subscription period for is due to start on Monday.

An IPO might be considerably harder to pull off next year, given the threat of recession, if Deutsche Bahn was forced to delay, a banker involved in the privatisation said this week.

Shares representing 24.9 percent of Deutsche Bahn's Mobility Logistics unit are due to be offered to private and institutional investors inside Germany and to institutional investors abroad through a private placement.

The global market for IPOs collapsed in the third quarter of this year in its worst performance since early 2003, data from Thomson Reuters has shown.

(Reporting by Jonathan Gould, Philipp Halstrick and Kerstin Leitel in Frankfurt and Markus Wacket in Berlin; Editing by David Holmes)