UPDATE 2-Britain awards $15 bln London rail contract to Go-Ahead business

Fri May 23, 2014 5:54am EDT

Related Topics

* Govia, JV between Go-Ahead and Keolis, wins Thameslink contract

* Award is blow for FirstGroup, which currently operates part of line

* Shares in Go-Ahead rise 8 pct

* Go-Ahead finance chief says to review dividend policy (Adds finance director comments, background)

By Sarah Young

LONDON, May 23 (Reuters) - Britain awarded an 8.9 billion pound ($15 billion) contract to run the expanded Thameslink rail network in London to an operator majority owned by Go-Ahead , ousting rival FirstGroup.

The new seven-year Thameslink contract is part of Britain's 6.5 billion pound upgrade to improve services on major commuter routes across the capital.

Govia, which is 65 percent owned by Go-Ahead, beat four shortlisted bidders in the first competition for a rail franchise since 2012, when the government was forced to pull a contract after flaws were found in the way it handled bids.

The Thameslink contract covers rail connections between London and towns in southern England including Brighton, Portsmouth and Cambridge, plus Gatwick and Luton airports.

It brings together two previous rail franchises, one of which had been operated by Govia and the other by First Group.

Analysts said the contract win was a coup for Go-Ahead, giving it certainty over rail earnings. Shares in the company opened 11 percent higher, hitting an all-time high in early trading on Friday, and were up 8 percent at 0945 GMT.

Shares in FirstGroup traded down 1.9 percent, paring earlier losses of as much as 5 percent.

The contract, from which Govia will receive about 8.9 billion pounds in franchise payments, will boost Go-Ahead's profits by about 150 million to 200 million pounds over the contract's seven-year period, Go-Ahead finance director Keith Down said.

"This should generate cash for us and therefore we should be in a position to review our dividend policy in due course," Down said in an interview with Reuters, without giving further details.

It paid out 81 pence per share for the 12 months ended June 29, 2013.

FRENCH PARTNER

Govia, 35 percent owned by France's Keolis which is 70 percent owned by French national rail company SNCF, estimated franchise payments at 1.1 billion pounds in the first full year of operation, and is targeting a profit margin of about 3 percent over the life of the contract.

Together the Thameslink routes will carry more passengers than any other franchise in Britain. Passengers will travel in 1,140 new carriages being built by Germany's Siemens, due to be delivered between 2016 and 2018.

Govia beat bidders Abellio, FirstGroup, MTR and Stagecoach to win the contract which will run for seven years from September.

In the two years since the bungled rail award, the government has avoided full competitive processes across the country's privatised rail industry and instead negotiated direct contract awards.

But the Thameslink process marks the start of a new round of competitions, with the award of the East Coast line due this November.

FirstGroup is under pressure after it deferred the restart of dividend payments and said it had to focus on rebuilding its finances on Wednesday.

It is among the bidders for the East Coast line, along with a joint bid from Keolis and Eurostar, and InterCity Railways, a joint venture between Stagecoach and Virgin Holdings.

It said was disappointed not to be awarded Thameslink but was on course to meet its stated medium-term targets.

($1 = 0.5931 British Pounds) (Editing by Erica Billingham and Pravin Char)

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