Eurostar Sale Shows U.K. Undervalues State Assets, Lawmakers Say

  • Final price for stake sale 92% higher than Treasury valuation
  • Commons audit committee says government must learn lessons

The U.K. took a stake in Eurostar in 2010, along with the French and Belgian railway operators, after a series of attempts to restructure the company led to the recognition that it would need state support.

Photographer: Simon Dawson/Bloomberg

The U.K. government’s sale of its stake in Eurostar International Ltd., the operator of passenger rail services through the Channel Tunnel, demonstrated a systematic failure to properly value state assets, a panel of lawmakers said.

While the sale was well handled and eventually got a “good return” for taxpayers, bringing in 585 million pounds ($830 million), the Treasury initially only valued Britain’s 40 percent share in the company at 305 million pounds, the House of Commons Public Accounts Committee said in a report published in London on Wednesday.

“We are concerned that there has been a pattern of undervaluing publicly owned assets prior to sale,” the panel said, citing the sale of Royal Mail Plc in 2013 as another example. The Treasury should revise its “asset-sale valuation guidance to ensure it produces more realistic valuations which protect the taxpayer from selling assets too cheaply,” the cross-party panel said.

The U.K. took a stake in Eurostar in 2010, along with the French and Belgian railway operators, after a series of attempts to restructure the company led to the recognition that it would need state support. The stake was sold in March last year to Patina Rail LLP, a joint venture of Canadian investment company Caisse de depot et placement du Quebec and Hermes Infrastructure, after a competitive auction that pushed the price 92 percent higher than the Treasury estimate.

Small Circle

In estimating the value of assets for sale, the U.K. relies too much on a small circle of financial and legal advisers, the panel said. UBS AG and the law firm Freshfields were involved in both the sale of Eurostar and of Royal Mail.

“Although we are not questioning the integrity of the appointment process and have no reason to doubt the professionalism and expertise of these advisers, we are concerned that a small number of advisers are engaged so frequently,” the committee said.

A government-commissioned report on the sale of Royal Mail, published in December 2014, found as much as 180 million pounds more could have been raised if ministers had been more flexible about the pricing of the initial public offering. The shares soared 86 percent above their IPO level in the first three months of trading, leading to accusations from lawmakers that they were underpriced.

‘Poor Value’

Wednesday’s report also questioned the government’s assessment of the economic benefit of infrastructure projects and said the high-speed rail line from London to the Channel Tunnel “was poor value for money.” Lawmakers had been hampered in making a proper evaluation of the new planned route from London to the north of England, the panel said.

“These facts raise serious questions about the government’s approach to valuing public assets, as well as its commitment to considering the value for money of public spending on such expensive projects,” Meg Hillier, the opposition Labour Party lawmaker who heads the committee, said in a statement.

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