UPDATE: UK To Sell High-Speed Rail Rights To Raise Cash

21st Jun 2010 17:06

(Adds detail.) By Kaveri Niththyananthan, Jessica Hodgson and Marietta Cauchi Of DOW JONES NEWSWIRES LONDON (Dow Jones)--The U.K. government Monday said it is putting up for sale the rights to operate the country's first high-speed rail line as it tries to raise money to fill a gaping budget deficit. The sale already has prompted speculative interest from infrastructure investors, people familiar with the matter said. The winning bidder for High Speed 1, or HS1 Ltd., will receive a 30-year concession to run the 68-mile railway line and stations between London and the Channel Tunnel. After that period, management will revert to the government. The government is on a mission to cut spending and raise cash as it tries to plug a budget deficit that is estimated at about 11% of Gross Domestic Product, or about GBP155 billion for the fiscal year ending 2011. The high-speed rail line cost about GBP6 billion to build and opened in November 2007. Treasury chief George Osborne is expected to unveil an emergency budget Tuesday that will see deep cuts in departmental spending, with economists saying the government could need to cut costs by about GBP70 billion over the next five years. "The money generated by this sale will make an early, significant contribution to the crucial task of reducing the public sector debt," said Transport Secretary Philip Hammond. "But the sale will also bring benefits to passengers as the successful private bidder will be incentivized to attract new operators serving new routes." He said a private enterprise "can provide both a better deal and a superior service to the public." A key objective for the franchise holder will be to try to attract new services, serving new destinations, the Department for Transport said. The operator will be able to sell access to the track and stations on a commercial basis. A number of companies and infrastructure investment funds are considering bidding for the high-speed rail link, according to people familiar with the matter, although the process hasn't formally begun. Eurotunnel PLC (ETL.LN), is exploring bidding, in conjunction with two of its shareholders, Goldman Sachs Group Inc. (GS) and Infracapital, an infrastructure fund operated by Prudential PLC (PRU.LN) asset management unit M&G Investments, a person familiar with the matter said. 3i Infrastructure PLC (3IN.LN), in which 3i Group PLC (III.LN) has a 33.3% stake, and Morgan Stanley's (MS) infrastructure fund are also interested, and are considering whether to bid, people familiar with the matter said. It is unclear whether the two funds--which have worked together on other situations--are teaming up with each other or other parties to bid for the rail concession. Other investors with historical interest in infrastructure assets include Macquarie Group Ltd. (MQC.AU), the Australian banking giant. A spokeswoman declined to comment on whether Macquarie would bid. RREEF Infrastructure, an infrastructure fund owned by Deutsche Bank AG (DB), has also bid on similar projects but wasn't immediately available for comment. The price sought for the asset isn't clear. High Speed 1 currently is being used by Eurostar services linking London to European destinations, while Go-Ahead PLC's (GOG.LN) Southeastern Trains operates domestic routes. Following the sale, HS1 Ltd. will be independently policed by the Office of Rail Regulations to ensure passenger interests are safeguarded. Bidders interested in high-speed rail have until July 9 to register their interest as part of a "pre-qualification" process, the government said. UBS is advising London & Continental Railways Ltd., a subsidiary of the U.K.'s Department of Transport. -By Kaveri Niththyananthan, Dow Jones Newswires; 4420 7842 9299; [email protected] (Laurence Norman contributed to this article.) (END) Dow Jones Newswires June 21, 2010 12:06 ET (16:06 GMT)