Canadian pensioners pay £2.1bn for HS1

Two Canadian pension funds will pay £2.1 billion to control Britain's only high-speed railway, the first privatisation of a coalition government intent on cutting the national deficit.

Ontario Teachers' Pension Plan (OTPP) and Borealis, the infrastructure investment arm of Ontario Municipal Employees Retirement System, beat rivals including Eurotunnel, Morgan Stanley and Allianz for the 30-year concession for the High Speed 1 (HS1) line linking London to the Channel Tunnel.

Passenger services through the tunnel, which is operated by Eurotunnel, are run by Eurostar and directly link Britain with France and Belgium.

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"It is an enormous amount of money, a big vote of confidence in UK plc and a big vote of market confidence in the future of UK high-speed rail," Transport Secretary Philip Hammond said yesterday. "It also shows the decisive action this government has taken to reduce the deficit is already paying dividends and investors believe once again that Britain is open for business."

The HS1 price tag beat analysts' expectations for between 1.5bn and 2bn. The line, which cost about 5.8bn to build, became fully operational in November 2007 and stands to benefit from the liberalisation of the European cross-border rail passenger market, with Germany's Deutsche Bahn planning to run direct services between London, Amsterdam and Frankfurt by the end of 2013.

Operators pay index-linked access charges to HS1, partly regulated and partly depending on the number of trains. They include Eurostar and Southeastern Trains, which operates domestic high-speed services.

Domestic services provide about 60 per cent of revenue on the 68-mile line and are partly underwritten by the government, while 40 per cent stems from international services from London, Paris and Brussels.

In the year to March, HS1 expects to earn 135m before interest, tax, depreciation and amortisation, so on that basis the sale represents a 15.6 times multiple.

HS1 is used every year by more than nine million international and five million domestic passengers. Domestic trains use half its 20-services-per-hour capacity. Eurostar uses a quarter for its Paris, Brussels and Lille services, so Deutsche Bahn could take the other quarter.

London and Continental Railways, HS1's parent company, was transferred to public ownership in June 2009. The government will still own the railway and freehold to the land.

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