28 May 2010 16:30

RZD prepared to sell 25% of Freight One to strategic investor after IPO

SOCHI. May 28 (Interfax) - OJSC Russian Railways (RZD) is prepared to sell 25% of the stock in subsidiary OJSC Freight One to a strategic investor after the IPO of a blocking stake in the carrier, Senior RZD Vice President Vadim Mikhailov told reporters on the sidelines of the Strategic Partnership 1520 forum in Sochi on Friday.

"There are several points of view regarding Freight One. There is the view that only an IPO need be done. There is a variant that there should first be an IPO and for the remaining packet, for example, find a strategic investor," Mkhailov said.

As to the second idea, Mikhailov said that a blocking packet of Freight One shares might be offered at IPO and sold to a strategic investor.

Whether to sell a controlling stake in RZD subsidiary Freight One or Freight Two is a topic of current discussion, he said. "Judging from it, a mechanism for selling Freight One will finally be determined," he said.

"We have from the beginning wanted to sell 49% of Freight One. It may be decided that if control over Freight Two remains with the company, then control over Freight One will be sold. The regulator requires that [the company] retain control over [only] one of the two, otherwise there will be no market. It only remains to be determined where control remains after all, and where it goes," Mikhailov said.

General Director at Freight One Salman Babayev said recently that he thinks it would be feasible to have a blocking-stake IPO in 2011.

"I think we can't [place] 51% today. Next year, we need to put 25% plus one share up for IPO," he told reporters in Moscow.

Babayev repeated his earlier statement that Freight One would be technically ready for a road show ahead of placement by this September.

"But we need three-year IFRS [financial reporting] anyway. We will do 2008-2009 in May. We will have a full three years of work [in 2011], and we can exhibit okay then," he said.

Nevertheless, a final decision on the timing and form of the IPO, and the size of the share packet on offer, will be for the government to decide.

Last February, RZD announced plans to sell up to 50% minus two shares in Freight One before 2012. The Transportation Ministry has insisted that a controlling stake in the freight operator be sold by the time final conclusions are drawn on the operations of RZD's other national hauling subsidiary Freight Two, "so that the aggregate number of railcars at Freight One and Freight Two, as RZD subsidiaries, do not dominate the market".

Freight One is Russia's biggest railway freight-carrier, wholly owned by RZD. The company now has over 200,000 railcars of various types (21% of all railcars in Russia). It hauled 231.8 million tonnes of cargo in 2009.

Babayev estimated the operator's value at roughly $5 billion. Proceeds from the sale of Freight One will be invested in developing Russia's railway infrastructure.