|Georgian Railway to list in London|
|April 18, 2012|
By Robert Wright, Shipping and Logistics Correspondent
Georgian Railway, which claims to be one of the world’s most profitable rail operations, on Monday outlined plans to become the first quoted state-controlled railway monopoly by listing on the London Stock Exchange.
Irakli Ezugbaia, Georgian Railway’s chief executive, said the ex-Soviet state’s government would use proceeds from the listing, expected in May, to invest in the Caucasian state’s infrastructure. An exact date for the IPO – under which Georgian Railway will list global depositary receipts representing 25 per cent of its capital – would depend on market conditions, the company said.
Two other railway operators from the former Soviet Union – Globaltrans, a private Russian rail freight operator, and TransContainer, the container arm of Russia’s state-owned rail company – are already listed in London. Georgian Railway will be the first traditional state railway monopoly – with an infrastructure-owning arm and freight and passenger operations – to list its shares anywhere in the world.
Mr Ezugbaia said the company was listing itself as an undivided, integrated organisation to mimic the structure of large, North American railroads, such as Union Pacific and CSX. Those companies own their own track, locomotives and wagons, instead of dividing the infrastructure and operations as normally happens in the European Union.
“We found that this exact strategy is the way to be oriented to successful growth for the railway operations,” Mr Ezugbaia said.
The company’s profitability depends entirely on its handling of freight traffic, particularly oil moving from Azerbaijan and Kazakhstan towards western Europe. Freight provided 95 per cent of the company’s $286m revenues for last year, it said. The company earned earnings before interest, tax, depreciation and amortisation (ebitda) of $156m and $104m net income last year. The ebitda margin of 54.4 per cent for the year was one of the highest globally, it said.
The company had undergone a five-year restructuring to transform its previously Soviet-style management practices, Mr Ezugbaia said. Its organisation was now based on “profit maximisation”, he said.
The other ex-Soviet rail companies listed in London all depend on RZD, the Russian state-owned train operator and infrastructure owner, to provide access to its network and, in many cases, to haul their trains. Regulatory rules stipulate how much RZD can charge.
However, Georgian Railway will be an unusual example of a listed company enjoying a state-sanctioned monopoly in its industry but allowed to set its own charging levels. Such a position allowed Georgian Railway to maximise shareholder value, Mr Ezugbaia said.
“This has to be more interesting for private shareholders,” he said.
Mr Ezugbaia downplayed, meanwhile, the risks to the company of a renewal of conflict between Georgia and Russia over the breakaway region of South Ossetia, where the two fought a brief war in 2008. The two had reached an agreement over the region that had allowed Russia to join the World Trade Organisation, Mr Ezugbaia pointed out.
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