A Leasing Life investigation has revealed that at least 10 foreign banks are now chasing rail finance deals in the UK, while more British banks are also taking an interest in this sector, putting pressure on HSBC Rail, Porterbrook and Angel Trains, the three ROSCOs.
This comes amidst details, first reported by Leasing Life staff, that the Royal Bank of Scotland is considering selling Angel Trains, its train lease subsidiary, in a bid to drum up cash for its buyout of ABN AMRO, and also get rid of assets that tie-up too much capital.
According to sources, the following overseas banks have entered the rolling stock finance market: Natixis, Commerze Bank, DVB Bank, Fortis, ING, Macquarie Bank, HSH Nordbank, Ixis, and NIBC are all now chasing rail finance deals in the UK.
We can also reveal the three ROSCOs recently lost a bid to finance the trains to be used on the new East London overground line and North London Line, due to be completed in 2010 in preparation for the 2012 Olympics. The deal, however, was won by National Australia Bank and Sumitomo Mitsui Banking Corporation, which are both new players in this market.
Barclays, a bidder in this deal, is one of the latest players to enter the train leasing market, and Alliance & Leicester’s commercial bank, has considered leasing passenger rolling stock but to date has been largely focused on freight train asset finance, in which it has invested around £100m to date.
The threat to the ROSCOs position in the marketplace comes amidst competitive bids by train lessors companies to finance the UK’s replacement high-speed trains. The former British Rail-owned train and carriage fleet, which represents around 80 per cent of the rolling stock fleet, will also have to be replaced over the next few years.
A significant number of companies, including private equity specialists, are rumoured to be interested in buying Angel, which sources say is up for sale also because of the impact of Basel II on its profits and losses.
One source said: “Angel has been encouraging institutions close enough to the market that they should get in touch [with Angel], and [Angel] will have prepared an information memorandum.
“It will then set up a process to narrow the field to get some indicative offers out of people, and then move onto full diligence and bid.”
Babcock & Brown, the Australian investment company which has a train lease joint venture company, CBRail, with Bank of Scotland, is also understood to be in the bidding process.
Angel Trains is an attractive bid target because of its number one spot in the UK ROSCO market, and also as roughly 20 per cent of its capability is in Europe and the Far East.
However, it faces growing competition there, particularly from Mitsui & Co, the Japanese finance company, and also as European regional governments are increasingly giving rolling stock finance deals to local banks.
New entrants to the lease rolling stock sector face several barriers, particularly, according to one source, as “only the ROSCOs have the suitably qualified engineers expected to know what they are buying”.
Angel Trains owns around 5,000 locomotives and coaches, known collectively as rolling stock, which are valued at around £4bn Its fleet includes all the 53 pendolinos used on the West Coast Main Line, the Siemens built Desiro trains used by South West Trains, and a large amount of ex-British Rail owned rolling stock.
Angel Trains is part of a consortium, that also includes Bombardier Transportation, Siemens, and Babcock & Brown, which has been shortlisted to take part in the Department of Transport’s Intercity Express Programme that will replace the UK’s existing high-speed train fleet.