Ryanair Poland Plans Fuel Railway High-Speed Train Bonds

The start of domestic flights by Ryanair Holdings Plc is turning up the heat on Poland’s state railway, which is spending 36 billion zloty ($12 billion) over seven years to modernize as competition for customers picks up.

PKP SA is accelerating investment to shorten rail travel times and win back passengers with its biggest infrastructure upgrade since communism ended in 1989. The company has bought Alstom SA’s high-speed Pendolino trains, which it will start rolling out on its main routes next year, when Ireland’s Ryanair is scheduled to start flights within Poland.

A unit of PKP will sign an agreement this month to sell 1.5 billion zloty of six-year notes to the country’s development bank to upgrade train tracks, its Chief Executive Officer Remigiusz Paszkiewicz said in an Oct. 10 interview. Another PKP division is selling 500 million zloty of bonds to help build the train’s power-supply system, according to an Oct. 17 e-mail.

“We’ll start our services nine months after Ryanair,” Marcin Celejewski, in charge of sales at PKP’s Intercity unit, said in an e-mail to Bloomberg on Oct. 17. “We’ll fight for the market that the airline will create.”

‘Hungry’ Market

The emerging-market infrastructure bond index has lost 5.4 percent this year, the worst performance among JPMorgan Chase & Co.’s 12 industry gauges after debt from oil and gas companies. Polish company dollar bonds have returned 2 percent in 2013.

PKP needs to find investors for rail projects co-financed the European Union as part of the 28-country bloc’s 2014-2020 budget. In the EU’s previous seven-year spending plan, ending on Dec. 31, the company signed deals for 25 billion zloty of train-infrastructure projects, including 12 billion zloty in EU subsidies, a Regional Development Ministry report said in April.

PKP Energetyka SA, the unit handling power investments, is selling bonds to Bank Gospodarstwa Krajowego, the state development bank, and ING Bank Slaski SA to help build infrastructure for the Pendolino trains. Neither Energetyka nor Polskie Linie Kolejowe SA, which plans to sell 1.5 billion zloty in notes, disclosed any details about their borrowing costs.

“The market is hungry for good infrastructure projects,” Marta Towpik, the chief financial officer of the Energetyka unit, said by phone from Warsaw on Oct. 17. “We had nine banks placing binding bids to lend us the money.”

Speedier Trains

The sleek, streamlined trains will travel as fast as 230 kilometers per hour (143 mph), while Poland’s current locomotives have a top speed of 160 km per hour, according to data from the Transport Ministry’s website.

The 340-kilometer (211 mile) journey from Warsaw to Gdansk on board the Pendolino will be cut in half to 2 hours 40 minutes, compared with as little as 2 hours 15 minutes for the 495-kilometer rail route between London and Paris.

“Bonds sold to finance specific projects will always find buyers,” Malgorzata Kolakowska, CEO of ING Slaski, said in an interview in Warsaw on Oct. 18. “The condition is that the projects should be profitable.”

The first Pendolino will depart from a Polish station in December 2014 and ticket prices will start from 49 zloty, according to PKP Intercity’s website. Ryanair will start flying between Polish cities in March, charging from 99 zloty per ticket, the company said in an e-mailed statement on Sept. 26.

Fewer Passengers

Train traffic in Poland has dropped 24 percent in the past 12 years to 273.9 million passengers in 2012, according to the country’s rail transport authority. The drop compares with an 87 percent increase of domestic-flight passengers between 2010 and 2012, data from the Civil Aviation Authority show.

Poland, with 38 million people and a per-capita income of $10,500, has “room to grow” its airline business, Ryanair’s Chief Operating Officer Michael Cawley told reporters in Warsaw last month. About 30 million passengers per year fly to and from Polish airports, compared with 200 million in Spain, which has a similar population and annual income of $25,000, he said.

The yield on PKP’s euro-denominated bond due in October 2016 was 2.75 percent at 1:44 p.m. in Warsaw, compared with 1.29 percent on similar-maturity sovereign Polish euro bonds. The rate on the government’s zloty note due in April 2016 stood at

3.11 percent.

The additional yield on Poland’s dollar notes over Treasuries increased one basis point, or 0.01 percentage point, to 135. The zloty weakened 0.3 percent to 4.1837 per euro, paring its advance over the past three months to 1.2 percent, the biggest appreciation among the 24 emerging market currencies tracked by Bloomberg after the South Korean won.

“Financing of infrastructure projects is and will continue to be attractive for banks,” ING’s Kolakowska said.

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