Tranz Rail sale positive, say analysts

By DANIEL RIORDAN transport reporter

Analysts have welcomed Tranz Rail's sale of its Auckland rail corridor lease and assets to Auckland region councils for $81 million.

They say the deal is positive for the company, and makes a resolution of the share overhang from its major investors more likely.

The Government, which took over negotiations early this year after balking at the proposed $112 million lease price agreed between the company and councils, said the deal was preliminary and should be settled by early December.

Under the deal, councils will pay Tranz Rail $2.85 million a year for train control and maintenance for at least five years, and pay the company $3 million for its commuter trains.

Tranz Rail has negotiated changes to its master lease of New Zealand's rail corridor.

This includes extending its ability to sublease beyond seven years and lifting restrictions on property beside the corridor.

Salomon Smith Barney analyst Blair Cooper said the deal was roughly comparable in value for Tranz Rail as the original $112 million lease proposal.

Tower Asset Management analyst Paul Robertshawe said the market was looking for a transaction like this to firm up the company's restructuring plan.

Mr Cooper said the deal was also good news for the company's biggest shareholders, Wisconsin Central and Fay Richwhite, who have been trying to sell their combined 38 per cent stake since last November.

"This was also one of the key issues standing in the way of the resolution of the share overhang."

Tranz Rail shares yesterday rose 5 cents to $4.25 after the deal's announcement, on light turnover.