EQT launches sale of UK rail business

06 August 2019 - 12:00 am UTC

EQT Infrastructure has kicked off an auction process for its UK rail business GB Railfreight, three years after acquiring the company.


The Swedish infrastructure investor has appointed Deutsche Bank to advise on the sale, sources said, adding that rather than issuing teasers and IMs, it has selected a group of companies to submit bids through an auction. The bidders include Infracapital, the equity infrastructure investment arm of the insurer Prudential’s M&G Investments, sources said. 


EQT, GB Railfreight, Deutsche Bank and Infracapital declined to comment.


EQT Infrastructure bought GB Railfreight through its EQT Infrastructure II fund from channel tunnel operator Groupe Eurotunnel in 2016 for an enterprise value of EUR 180m. In its last available accounts for 2017 it reported revenue of GBP 143.8m, up from GBP 126.8m the previous year. Operating profit rose to GBP 9.5m from GBP 7.9m. GB Railfreight was launched in 1999 and specialises in rail transportation of coal, cars, petrochemicals and other materials.


The company benefited in 2017 from new contracts including from the waste company Biffa and from UK-headquartered European Metal Recycling and has also been adapting to the decline in demand for coal transportation by converting wagons for other uses. 


GB Railfreight is part of EQT’s Hector Rail, which also has operations in Scandinavia and Germany. Competitors include DB Cargo UK – the UK’s largest rail freight company – which is owned by German state railway group Deutsche Bahn, and Freightlining – a subsidiary of US-listed rail freight group Genesee & Wyoming. Unlike GB Railfreight, DB Cargo UK and Genesee were born out of formerly nationalised freight operators of British Rail. 


Elsewhere in Europe, rail freight companies have been backed by infrastructure investors including Morgan Stanley Infrastructure Partners, which owns Hamburg-headquartered VTG. Although leasing rail freight wagons can be more volatile than leasing rolling stock for passengers due to being dependent on trade, it can often offer higher returns based on shorter contracts. Infrastructure funds have also invested in rolling stock companies with a mixture of passenger rail and freight operations, including European rail group Alpha Trains, which is backed by AMP Capital, Arcus Infrastructure Partners and PSP Investments. 


Infracapital does not have any investments in rail freight wagon leasing, but does have exposure to UK rolling stock on the passenger side, having established Corelink Rail Infrastructure with fellow infrastructure investor DWS in 2017. Corelink in 2017 agreed to acquire rolling stock for the West Midlands franchise in England, which is operated by a group led by Abellio. 


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