Royal Bank of Scotland on Friday confirmed the long-awaited sale of Angel Trains, its train-leasing subsidiary, to a consortium led by Babcock & Brown, the Australian infrastructure group.
The sale, which values Angel Trains’ debt and equity at about £3.6bn ($7bn), is expected to deliver a profit of £250m-£300m to RBS, helping to boost the banking group’s capital reserves, which have been stretched by the credit crisis and its involvement in the break-up bid for ABN Amro, the Dutch lender.
The consortium, which includes Babcock & Brown’s European Infrastructure Fund, Deutsche Bank, AMP Capital and Access Capital, had lined up financing from a group of international banks.
The sale underscores how, despite the credit crisis, there is still strong demand for infrastructure assets that offer stable and predictable long-term cash flows.
It represents a healthy profit for RBS, which bought Angel Trains for £408m in December 1997 from a shareholder group led by Nomura, the Japanese bank. RBS has been in exclusive talks with the Babcock & Brown consortium for several months.
However, talks were complicated by discussions with the UK department of Revenue & Customs over the tax treatment of the deal.
RBS recently completed a £12bn rights issue as part of its plans to rebuild its capital ratios and lift its core Tier One capital ratio – a key measure of balance sheet strength – to more than 6 per cent by the end of the year.
The bank has promised to raise about £4bn in additional capital through a series of disposals.
Apart from Angel Trains, RBS is also in the process of selling its UK insurance subsidiary, which owns the Direct Line and Churchill brands. It is also close to raising a further £1bn by selling its share of a joint venture with Tesco to the supermarket group.
Angel owns about 5,000 locomotives and coaches, including the 53 Pendolino tilting trains used on the west coast main line. It has offices in London and Derby and runs a European subsidiary, Angel Trains Cargo, from offices in Antwerp in Belgium.
The Australian investment group led the deal, arranged debt financing and put together the equity consortium. The investment will be held by Babcock & Brown European Infrastructure Fund, which raised £2.2bn last year.
The deal comes as Babcock & Brown suffered one of the worst day falls on the Australian share market since it floated in 2004, with the shares down 28 per cent on Thursday on fears a debt review would be called after the group’s market value fell below the A$2.5bn threshold.