European railway companies eye Greek network sale

[John Ashworth]

Exclusive - European railway companies eye Greek network sale

By Anthony Deutsch | Reuters – 13/04/12

BRUSSELS (Reuters) - Three European railway companies are interested in buying all or part of Greece's railway business, as the debt-laden country sells assets to satisfy its lenders, people familiar with the discussions told Reuters.

Russia is considering buying the entire Greek railway network and its operator Trainose, while Romania's largest private railway company, Grup Feroviar Roman (GFR), has expressed interest in the cargo business, two high-level Greek officials said.

A Russian Railways official said it had discussed buying all or part of the network, while its head Vladimir Yakunin told Reuters, "We're keeping in contact with the Greeks ... They haven't decided on the model yet, so it's too early to talk about our participation."

French railway company SNCF wants passenger and freight routes and has gone through a due diligence process, said one of the Greek officials, who attended associated meetings. Talks were held in Athens and Paris in 2010 and late 2011, when they reached the level of the transport ministry.

An SNCF spokesman in Paris said the French rail operator "is not in the running for the purchase of Trainose, nor is it in the running for the purchase of a railway company or a railway line in Greece".

No one was immediately available for comment at GFR, which owns freight operations in Romania, Hungary, Bulgaria and Serbia, among other countries.

One of the Greek officials said he had met several times with a delegation from GFR, most recently in February.
Trainose, which officials hope will raise 200 million euros, and the Railway Organization of Greece (OSE), which owns the physical railway infrastructure, were one company before being split in 2008. Greece took over 10.7 billion euros of their debts in late 2010, about 700 million euros of it from Trainose.

The success of a deal with the European railway companies hinges largely on the Greek state's ability to receive European Union approval for the state intervention. Athens is pushing for the green light prior to going ahead with the privatisation.

Trainose is among dozens of state-owned businesses put on the auction block under Greece's 130 billion euro bailout programme with the so-called troika of the European Commission, European Central Bank and International Monetary Fund.

Under an EU timetable, the tender process for Trainose will open in the fourth quarter of 2012, and its assets will be transferred to the Greek privatisation fund. The proceeds from a sale, slated to close in the spring of 2013, will contribute to the 19 billion euro target Greece aims to raise to cut debt.

SNIFFING AROUND TRAINOSE

With nearly 900 employees, Trainose operates all cargo and passenger routes on 2,500 km of railways on 500 routes, according to the company's website.

It narrowed its losses to 33 million euros in 2011 and swung to a profit in the final month of that year. In the first two months of 2012 it made a profit of nearly 142,000 euros, compared with a loss of 12.6 million euros a year earlier.

Since the Greek crisis, it has been restructured with 1.4 billion euros in government funding, which has been used to close loss-making routes and cut nearly half the staff.

One of the two Greek officials said a Russian delegation of around 20 people visited Athens late in 2011 and reviewed Trainose's books to assess its value and profitability.

It was unclear if OSE, which according to filings employs 4,000 people and has 10.3 billion euros in assets, was part of the negotiations.

The Greek officials said SNCF, which has assisted in the Trainose restructuring since 2010, had "extensive discussions" about an acquisition in September 2011.

During a period of due diligence, the French "asked very detailed questions about the finances" and about buying specific railway assets, one of the officials said.

Trainose operates all passenger and freight lines in Greece. The country's ports are strategically positioned to transport goods to rising markets across the Balkans and Eastern Europe.

China has already seized on opportunities presented by Greece's debt crisis, with China-based COSCO Pacific last year taking control of Greece's largest container terminal, Piraeus, negotiating a 35-year lease for almost $5 billion.

SELLING CHEAP

Two Greek government officials in Brussels said they have been pressured by European Commission officials to sell off the railways sooner than a previously agreed timetable, which they argue will hurt the price.

The key hurdle to a sale is securing approval from the European Competition Commission (ECC) for the aid to Trainose and OSE, which is required under EU competition laws.

It is in the interest of Greek officials to sell at the highest price, while the European Commission is eager to send a signal that it wants to recover the billions in European taxpayers' money used to bail Greece out as swiftly as possible.

If the Commission finds the aid violated EU rules and constituted an illegal government subsidy, the debt would then become the responsibility of a prospective new owner.

"No serious investor would acquire the company without that having been cleared up," one of the Greek officials involved in the sale talks told Reuters. "They need to clear up the status of the aid first."

In the case of Trainose, the 700 million euro debt would dwarf its estimated 120 million euros' worth of fixed assets.
Concerns the Commission is pressuring Athens into a fast sale prompted Marilenna Koppa, a European Parliament member for the Greek Democrat Socialist Party, to seek clarification from EU Commissioner Olli Rehn in February.

"The privatisation of Trainose before authorization is granted reduces its value and in practical terms will lead to the purchase of the company at a low price," she wrote in Brussels.

In a two paragraph answer last week, Rehn said the assertions were "not correct".

Under a timetable agreed by Greece and the troika of foreign lenders, Athens will first sell off highly profitable gambling and lottery companies, principally OPAP (OPAr.AT), Europe's biggest betting company.

(Additional reporting by Harry Papachristou, Matthias Blamont, Gleb Stolyarov and Markus Wacket; Editing by Will Waterman)