Indicative offers in this week for £2bn HSBC rail unit

HSBC is set to receive indicative offers for the sale of its UK rolling stock leasing company by the end of this week. A consortium of 3i, Morgan Stanley and Star Capital is pegged as the frontrunner but a source says the sale “is not a one-horse race”.

HSBC is expected to receive indicative offers for the sale of its rail unit – HSBC Rail – by the end of this week, a source familiar with the process told

A consortium comprising infrastructure funds managed by 3i and Morgan Stanley as well as UK-based investment firm Star Capital is pegged as the frontrunner. But a source says the sales process “is not a one-horse race”, despite adding that the above-mentioned consortium is “very strong”.

HSBC is seeking to net around £2 billion (€2.3 billion; $3 billion) for the sale of its rail unit – one of the UK’s three major rolling stock leasing companies which were privatised in the early 1990s. The rail unit owns a fleet of over 4,000 trains and its sale has been planned since 2008. But the financial crisis and its impact on the price of bank debt led the bank to shelve the sale.

The source reiterated earlier comments to, saying that the bank is only expected to sell the unit if the price is right. Previously, he had said that “the reason they [HSBC] have now re-started the sale is because they feel it is the right time to get a right price”. He then added: “This is not a fire sale, as this is an asset with a very strong performance.”

A £1.7 billion staple package is said to be in place, split into £1.2 billion of short-term bank debt and £500 million in long-term bonds. JP Morgan and Macquarie are two other names that have been cited in media reports in relation to the sales process.

A spokesman from HSBC did not wish to comment on the reports. Star Capital confirmed its interest in the asset but did not wish to comment on the sales process itself. Morgan Stanley and 3i also declined to offer any comment.

UK rolling stock companies have proved popular with investors due to their long-term contracts and steady cash flows. In June 2008, Royal Bank of Scotland sold its rolling stock leasing firm, Angel Trains, to Australian investor Babcock & Brown for about £3.6 billion. Following Babcock & Brown’s demise, Angel Trains is now a portfolio company of Babcock & Brown spinout Arcus Infrastructure Partners. 

Later that year, Deutsche Bank, Lloyds and Antin Infrastructure – a fund sponsored by French bank BNP Paribas – paid £2 billion for Porterbrook, Abbey National’s rolling stock firm. Abbey National is now part of Spanish bank Santander.