Tranz Rail promises Government plan

By PAM GRAHAM

Tranz Rail will present a specific proposal to level the playing field between rail and road networks to the Government by the middle of next month, chief executive Michael Beard said yesterday.

He said the company had agreed to put concrete scenarios and numbers on the table, including "what sort of transaction would bring about equality" by that deadline.

The aim was to reach a conclusion by the middle of the year.

The Government and rail operator have discussed six broad options for solving the dilemma that a private company funds the rail network while the Government controls road funding.

The Government wants logging trucks off regional roads, but Tranz Rail is short of capital and invests with shareholders in mind.

The options include subsidies, but a buyback of the network is most likely.

Beard went on a day out yesterday with 40 "ordinary shareholders" who saw the company's share price plunge this week on a profit warning.

His guests were polite and there was no haranguing, he said.

The low share price raised the prospect of a bid for the company, but the list of predators not interested in Tranz Rail is growing.

US regional rail operator RailAmerica was monitoring Tranz Rail, but had no interest in pursuing an acquisition at this time, Peter Turrell, the company's international vice-president, said yesterday.

RailAmerica, the world's largest short-line operator, is understood to have had a close look at Tranz Rail when cornerstone shareholders sold out a year ago.

The US company has been cutting costs in its Freight Australia business in the state of Victoria where grain shipments have been reduced by the Australian drought.

Last week, Toll Holdings of Australia, which has a rail joint venture with Patrick Corp called Pacific National, said Tranz Rail did not look like an outstanding investment.

Toll managing director Paul Little said in Australia yesterday: "I think the current management in Tranz Rail are still of the opinion that they can turn the business around."

Tranz Rail could be acquired only by a hostile bid. Toll Holdings had received no indication that Tranz Rail was going to be sold - "and we're certainly not going to do that".

Broker reports have said Tranz Rail's share price, at around 3.7 times earnings, might attract trade buyers.

Still, rewards have to be weighed against risks ranging from Government policy and lack of flexibility to controlling costs after outsourcing work, and selling and leasing back assets.

RailAmerica said in February that it planned to sell more than $100 million of assets by the end of next year to cut its debt-to-capital ratio from 63 per cent to 50 per cent.

Tranz Rail had its BB-plus credit rating suspended by Standard & Poor's yesterday. S&P said only that the suspension was extremely rare.

Tranz Rail chief financial officer Wayne Collins said it would have no impact on the company. He had told S&P he wanted the rating terminated because it was no longer required by funding providers.