RZD Eyes Germany's State Rail Operator

SOCHI, Krasnodar Region — Russian Railways wants to raise $25 billion in three years in what would be the country's biggest public flotation and plans to buy into German state rail operator Deutsche Bahn, its executives said Wednesday.

"The IPO will raise around $25 billion," Russian Railways senior vice president Fyodor Andreyev said.

He said the state might sell 25 percent minus one share, mirroring the plan by Deutsche Bahn to sell 24.9 percent of its transport, logistics and services businesses to private investors before the end of this year.

Russian Railways, or RZD, rates itself the world's second-largest railway and has annual revenues of around $40 billion. It plans to issue a $2 billion to $4 billion eurobond in October or November and a 20 billion ruble bond in July or August, Andreyev said.

The eurobond will be issued in tranches of $1 billion with five-, seven- and 10-year maturities, he said.

RZD's business is set to grow as Russia embarks on its largest-ever infrastructure reform to rebuild roads, bridges and airports, which suffered from underinvestment after the collapse of the Soviet Union.

The $25 billion IPO will dwarf Russia's hitherto biggest placements of oil major Rosneft and state-controlled bank Sberbank, which raised around $10 billion.

While the IPO plan may seem still a remote project, the company wants to take advantage of its current cash flows to buy new assets, including participation in a privatization tender for Deutsche Bahn.

"It is good idea. We will discuss it," RZD head Vladimir Yakunin told a joint briefing with Deutsche Bahn executives.

Deutsche Bahn chief executive Hartmut Mehdorn, who was at the briefing, did not comment on the statement from Yakunin, who is a close ally of former president and current Prime Minister Vladimir Putin.

The Deutsche Bahn sale, expected to raise as much as 6 billion euros ($9.4 billion), will be a first step in the process of privatizing the firm, a controversial process that opponents say will adversely affect the service and the company's work force.

Company management has agreed with labor unions that there will not be any layoffs for the next 15 years as a result of the privatization.

Deutsche Bahn, one of the biggest transport companies in the world, has annual revenues of around 30 billion euros ($46.96 billion) and more than 220,000 staff.

n RIA-Novosti reported Tuesday that Saudi Arabia canceled a railway construction tender won by RZD because of political tensions, Bloomberg reported.

The problem was "international relations" and not technology or RZD, RIA-Novosti cited Yakunin as saying. The company won in January the tender for an $800 million project to build a rail line from King Khalid International Airport in Riyadh to the Zabira junction.