UPDATE 2-Canadian pension funds win UK high-speed rail deal

* OTPP and Borealis win with 2.1 bln stg bid

* HS1 line links London to Channel Tunnel

* Marks first privatisation for coalition government

(Adds detail, background)

By Rhys Jones

LONDON, Nov 5 (BestGrowthStock) – Two Canadian pension funds will
pay 2.1 billion pounds ($3.39 billion) to operate 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 (GETP.PA: ), are run by Eurostar and directly link
Britain with France and Belgium.

“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,” British Transport Secretary Philip Hammond
said in a statement on Friday.

“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.”

MORE SERVICES

The coalition has vowed to reduce Britain’s debt and slash a
budget deficit that this year will be about 150 billion pounds.
The HS1 price tag beat analysts’ expectations for between 1.5
and 2 billion pounds.

The line, which cost about 5.8 billion pounds to build,
became fully operational in November 2007.

It 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.

Eurotunnel promised cost savings in its bid for the line,
people familiar with the matter said. Its consortium included
Goldman Sachs Infrastructure Partners and fund manager M&G’s
Infracapital arm.

Other bidders included a consortium of Morgan Stanley
Infrastructure, 3i Infrastructure Plc (3IN.L: ) and the Abu Dhabi
Investment Authority, and a grouping of Allianz (ALVG.DE: ), BT
Pension Scheme and Canada’s Public Sector Pension Investment
Board, people close to them have told Reuters. [ID:nLDE69S18O]

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.

TWIN-TRACK REVENUE

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

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

HS1 is used every year by more than 9 million international
and 5 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.

In the past the government guaranteed the debt of London and
Continental Railways (LCR), HS1’s parent company, after a
public-private partnership scheme in 1998 failed to raise the
private financing needed on overoptimistic traffic forecasts.

LCR was transferred to public ownership in June 2009.
Britain will still own the railway and freehold to the land.

UBS advised LCR on the sale and Citi advised the Department
for Transport. OTPP and Borealis were advised by Royal Bank of
Canada and Lexicon Partners.

($1=.6198 Pound)

(Writing and additional reporting by Greg Roumeliotis;
Editing by Will Waterman and David Hulmes)

UPDATE 2-Canadian pension funds win UK high-speed rail deal