An infrastructure fund managed by Australia's Babcock & Brown is to buy UK train leasing firm Angel Trains from Royal Bank of Scotland(RBS) for 3.6 billion pounds ($7 billion) including debt. The deal, announced on Friday, came as shares in Babcock and Brown plunged for a second day on concerns about its debt and ability to raise funds.
But it will help Royal Bank of Scotland, Britain's second-biggest bank, which is selling off non-core assets to further boost its balance sheet after raising 12 billion pounds ($23.5 billion) this week in the biggest ever rights issue. The Angel Trains price is slightly above the 3.5 billion tipped by some analysts and should boost RBS's capital by 250 million to 300 million pounds.
By 0901 GMT RBS shares were up 2.4 percent to 234-1/2 pence, boosted also by Britain's financial watchdog saying it would impose disclosure rules on short-selling. "I believe it is one of the largest acquisitions in Europe in the last few months and probably since the problems in the credit markets started last summer," Babcock & Brown head of European infrastructure Simon Gray told reporters on a conference call.
The consortium buying Angel Trains, which was selected as preferred bidder in February, also includes Deutsche Bank, AMP Capital Investors and Australian superfunds advised by Access Capital Advisers.
"The investment in the consortium is being made by Babcock & Brown European Infrastructure Fund, an un-listed private fund that is entirely separate from the Australian listed group, so it's in no way affected by what is going on with Babcock and Brown's share price in Sydney," Gray added.
Angel Trains has more than 40 percent of the railway rolling stock leasing market in Britain and more than 5,300 vehicles across Europe. It was formed in 1994 from the privatisation of British Rail.
The UK business is viewed as generating stable cashflow, and has attracted interest from banks and infrastructure investors. "The business has a very strong future due to the backdrop of continued rail growth in the UK and explosive growth in Europe," Gray said.
He highlighted that the UK Department of Transport (DoT) has issued guidance on expanding rolling stock to cope with overcrowding in some lines and that the European market is opening up to private companies for both freight and passengers, driven by the EU Open Access Directive.
Babcock & Brown, which traditionally has bought smaller assets than its Australian rival Macquarie Group Ltd, already owns European train leasing company CB Rail. Babcock buys global infrastructure assets, such as ports and power plants and bundles them into funds to earn management fees. It manages about A$72 billion in assets.
The company advised the consortium and also arranged long- term financing of over 2.8 billion pounds, while RBS was advised by Lazard. "Debt has been placed with a club of 17 lenders from around the world," Gray said. "We bought in a large number of institutions to eliminate the costs and uncertainties of underwriting in the current marketplace."