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Railtrack: End of line

October 8, 2001 Posted: 0957 GMT

LONDON (CNN) -- Railtrack shares were suspended after the government called in the administrators to take control of the country's creaking rail network.

The company, which operates Britain's track and stations, was sold to the public in 1996 after the Conservative government split up state-owned British Rail. Other companies took on running train services. 

But the company has fallen on hard times after a series of fatal accidents over the last two years. Railtrack has been accused of putting profit before improvements to the ageing rail network.

In a statement to the London Stock Exchange on Monday Railtrack said the government refused to provide additional financial support and petitioned the High Court to appoint an administrator.

On Friday,  Railtrack stock closed at 280 pence, valuing the company at almost £1.5 billion. It is a far cry from the stock's 1998 peak of over £17 and its issue price of £3.80-£3.90.

Administrators from accountancy firm Ernst & Young will be charged with keeping Railtrack running, despite its £3.3 billion ($4.9 billion) debt burden. They reassured Railtrack's 11,000 staff there were no plans for redundancies or pay cuts.

Ernst & Young is expected to create a not-for-profit company to acquire Railtrack, taking it off the stock market. The government said it would guarantee the firm's existing debts but would not bail out its shareholders.

"Our action today will see the end of Railtrack," Secretary of State for Transport Stephen Byers said on Sunday night.  "There will be no government money to bail out shareholders. There will be no last-minute rescue deal paid for by the taxpayer."

The decision marks the end of Railtrack in its present form and is an embarrassment to politicians who argued for less state involvement in public services. Other European governments will hope to learn from the UK as they reform their own railways.

Railtrack had already received billions of pounds in state aid and was counting on billions more, though there were signs that patience had worn thin. The UK rail regulator told Railtrack bosses in June to "put away the begging bowl."

The new company's owners, or members, would include the train operating companies, freight companies, trade unions and passenger groups. The government said it would be a lender, not a member, and would not be represented on its board.

Byers pointed to a basic conflict between the interests of Railtrack's shareholders and passengers. Investors want profit growth and dividends, while passengers want billions of pounds spent on a network that works and trains that run on time.

Two-thirds of the company's funds came from public coffers anyway, Byers added. He said it had emerged that Railtrack's costs and penalties for poor service will put it over budget by some two billion pounds over the next five years.

--from staff and wire reports



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