Plan B for Deutsche Bahn

BERLIN, GERMANY - SEPTEMBER 14: German Transport and Digital Technologies Minister Alexander Dobrindt (L) and Deutsche Bahn head Ruediger Grube attend the official presentation of the new ICE 4 high-speed train at Berlin's Hauptbahnhof main railway station on September 14, 2016 in Berlin, Germany. Deutsche Bahn will buy at least 100 of the trains, which are manufactured by Siemens and Bombardier, in its biggest investment since World War II. (Photo by Sean Gallup/Getty Images)
They won't be smiling if the state has to intervene. German Transport Minister Alexander Dobrindt (left) and Deutsche Bahn chief Rüdiger Grube (right).
  • Why it matters

    Why it matters

    Deutsche Bahn is trying to keep its debt below €20 billion to avoid higher refinancing costs.

  • Facts


    • The German state, Deutsche Bahn’s majority shareholder, has thrown cold water on plans to partially privatize the British subsidiary Arriva and the logistics unit Schenker.
    • The government has come up with an alternative plan to appropriate another €1 billion for Deutsche Bahn in the federal budget.
    • Under the plan, the government would also forgo annual dividend payments of €350 million for four years, which adds up to another €1.4 billion in financial assistance for Deutsche Bahn.
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Deutsche Bahn’s majority shareholder, the German state, has presented the railway operator with a Plan B after moving to block a bid to partially privatize British subsidiary Arriva and the logistics unit Schenker.

The federal government plans to shore up Deutsche Bahn’s troubled finances with a €2.4-billion ($2.6-billion) capital injection. According to Handelsblatt sources, the railway operator’s executive board will present the new strategy to the supervisory board, which oversees corporate strategy, in December.

Deutsche Bahn Chief Executive Rüdiger Grube had originally planned to raise up to €4.5 billion by selling 40 percent of Arriva and Schenker in initial public offerings in 2017 on the London Stock Exchange and Frankfurt Stock Exchange.

“The initial public offerings of Arriva and Schenker should finally be put to rest.”

Sören Bartol, Social Democratic Deputy Parliamentary Chief

But the privatization plan faced government opposition from the get-go. Chancellor Angela Merkel’s center-right Christian Democrats were divided, with some joining the center-left Social Democrats who opposed “hawking off state property,” a government source told Handelsblatt.

One way or another, Deutsche Bahn needs a cash injection to keep its debt from breaking the €20-billion mark and to finance future investments.

“The increase in debt at Deutsche Bahn has to be stopped and its [credit] rating cannot deteriorate any further,” said Eckhardt Rehberg, the budget expert for the Christian Democratic parliamentary faction.

Under the government’s plan, Transportation Minister Alexander Dobrindt and Finance Minister Wolfgang Schäuble have agreed to appropriate additional money from the federal budget. Deutsche Bahn would receive a cash injection of €1 billion by next year at the latest.

“The goal is to strengthen the railways and reach the necessary investments at Deutsche Bahn,” Mr. Dobrindt said.

The government would also forgo €350 million in annual dividend payments over four years, which adds up to another €1.4 billion. Berlin had originally earmarked those dividends to cover investments in Deutsche Bahn’s rail networks. The government will now cover the shortfall.

Mr. Rehberg said his Christian Democratic colleagues in parliament are open to the proposals but will scrutinize them closely: “We will not issue a blank check,” he said.

At least in public, Mr. Grube is still clinging to the partial privatization of Arriva and Schenker. The Deutsche Bahn chief executive, responding to a Handelsblatt report that the initial public offerings had been called off, said on Wednesday that “it’s still too early” to make a decision.

But Britain’s decision to leave the European Union has only made the partial privatization of Arriva look riskier, stiffening government opposition to the sale. The transport company’s Brexit risk is estimated in the triple-digit millions of euros.

Arriva, which generated €270 million in operating earnings on €4.8 billion in sales in 2015, was already hard hit by the British pound’s severe devaluation in the first half of this year, slashing sales by €100 million.

“The initial public offerings of Arriva and Schenker should finally be put to rest,” said Sören Bartol, deputy chief of the Social Democratic parliamentary faction. “I welcome the alternative now proposed by Transportation Minister Dobrindt.”


Handelsblatt’s Jan Hildebrand is deputy lead of politics coverage. To contact the author:

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