Tranz Metro deal hits buffers

By PAM GRAHAM

Tranz Rail is offering its Wellington Metro passenger services to allcomers after talks with a Wellington Regional Council joint venture disintegrated yesterday.

Tranz Rail wanted a non-binding indicative bid before allowing access to its books, arguing that was normal commercial practice. The joint venture between the council and Stagecoach refused, arguing it had doubts about the information it had seen so far, including outsourcing contracts.

The two sides traded press statements. Tranz Rail's said it had "concerns about the commercial maturity" of the council's approach to the sale, while the council's said it was "regrettable that Tranz Rail had placed unreasonable conditions on the sales process".

As a fallback position, Tranz Rail will conduct a competitive tender soon, asking for expressions of interest from other parties.

The council will seek a new contract with Tranz Rail for the passenger services. A council spokesman said the current contract becomes a month-by-month arrangement.

The council wanted a new, more transparent contract that could not be assigned to anyone else and included sanctions for service failures.

Transfund, a provider of part of the subsidy to the service, is working on a new competitive pricing process for rail and that will be the basis for a new contract.

Analysts said the sale was not crucial for Tranz Rail and it would not affect the company's financial restructuring plan, although part of that deal was for proceeds from asset sales to be used to pay back banks and support a letter of credit to owners of the Aratere ferry.

The council considered access to the track was the most expensive part of the asset because the rolling stock, particularly on the Johnsonville line, was old.

Analysts said there were many ways for Tranz Rail to quit the asset. One said it was believed the Wellington business was worth more than Auckland's.

Anyone buying the business would have to deal with the council because it partly subsidises the passenger services. Companies seeking the Auckland contract could be interested in running the two businesses together.

The Government bought the Auckland rail corridor lease for $81 million and has been criticised for paying too much, as Tranz Rail's total market capitalisation yesterday was $113 million.

It is believed Tranz Rail was seeking about $75 million for the Wellington business. Its shares closed yesterday at 93c. Shareholders have been selling stock to pay for a $66 million rights issue, which closes on Friday.