June 11, 2019 / 2:00 PM / a year ago

Deutsche Bahn's only option to steady debt is asset sales: document

BERLIN (Reuters) - Deutsche Bahn must plug a financial hole running into the billions of euros through asset disposals because it cannot expect more state funding nor can it increase borrowing, according to an internal strategy document seen by Reuters.

FILE PHOTO: Trains of German railway Deutsche Bahn are seen at the main train station in Frankfurt, Germany, March 27, 2019. REUTERS/Kai Pfaffenbach/File Photo

The only viable option would be the sale or initial public offering (IPO) of British rail and bus unit Arriva, the document said, although this would not be big enough to raise the 5 billion euros ($5.7 billion) that Germany’s state-owned railway operator needs to find by 2023.

In addition, a partial sale of logistics arm DB Schenker would be sufficient to stabilize Deutsche Bahn’s debt situation, the document added.

“A calculation of various transaction scenarios shows that a sale or IPO of DB Arriva and a later partial sale of DB Schenker can stabilize the debt situation of Deutsche Bahn, below the debt ceiling, over the medium term,” the document said.

A Deutsche Bahn spokesperson declined to comment.

The downbeat assessment comes as railways boss Richard Lutz, in the job for two years, faces growing pressure to turn around the operational and financial performance of the deeply indebted German railways.

In a country that has long been a byword for efficiency, Deutsche Bahn faces criticism over late and overcrowded passenger trains, while freight is increasingly being moved by truck on Germany’s overcrowded autobahns.

In 2016, parliament’s budget committee imposed a debt ceiling of 20.4 billion euros. Railway borrowings are approaching that level.

There was “no political acceptance” to raise the debt ceiling, while a capital increase has been ruled out after intensive political discussion, the document also said.

Investors are already positioning themselves to bid for Arriva, with an auction process led by Deutsche Bank and Citi expected to kick off in mid-June, valuing the business at 3.5 billion euros, sources told Reuters last week.

U.S. buyout fund Carlyle and German asset manager DWS are gearing up to bid for British rail and bus firm Arriva after holding preliminary talks with its German owner Deutsche Bahn, the sources added.

Reporting by Markus Wacket; Writing by Douglas Busvine; Editing by Michelle Martin and Edmund Blair

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