Caisse takes stake in Eurostar railway as part of global infrastructure push

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Canadian pension fund manager Caisse de dépôt et placement du Québec is buying the British government's stake in high-speed train service Eurostar International Ltd., part of a push to accelerate its infrastructure investments around the world.

Montreal-based Caisse, together with London-based consortium partner Hermes Investment Management, are purchasing the U.K. government's 40-per-cent holding in the rail company in a deal expected to be announced Wednesday morning. Eurostar connects Britain with continental Europe.

The Caisse is paying about £440-million ($850-million), for a 30-per-cent share while Hermes picks up the 10-per-cent balance. The total transaction value, including assumed debt, is believed to be about £757-million.

The deal highlights a new effort by the Caisse to step up its global infrastructure investments, jumping in as owner and developer of public assets being divested by debt-challenged governments. Building on existing assets such as Australia's Port of Brisbane, the pension fund is aiming to double its current $10-billion infrastructure portfolio by the end of 2018.

The investment also shows the Caisse's confidence that Eurostar can resist the economic shocks in Europe. Led by chief executive Michael Sabia, the fund remains cautious on European investments over all, but considers Eurostar a high-quality trophy asset that will generate predictable returns.

"This investment we're making because we actually believe that it will be resilient in Europe – as it was if you look at the last decade," said Macky Tall, the Caisse's senior executive in charge of infrastructure. He noted Eurostar's customer satisfaction in the service is consistently high and reliability tops 90 per cent.

Launched in 1994, Eurostar offers train service at up to 300 kilometres an hour between London and Paris, as well as London and Brussels, through the English Channel tunnel. Promising travel times of 2 hours and 15 minutes between France and Britain's two largest cities for a return fare of £69, it carried more than 10.4 million people last year.

Eurostar's controlling shareholder is France's state-owned railway, the Société Nationale des Chemins de Fer Français, with a 55-per-cent stake. Belgium's Societé Nationale des Chemins de Fer Belges holds the remaining 5 per cent.

Both railway companies have a pre-emption right to buy the U.K. government's 40-per-cent holding in Eurostar at a 15-per-cent premium to the price the Caisse consortium is paying. Mr. Tall said the Caisse believes they won't exercise that right because the railways have not signalled they would do so.

The deal is also conditional on winning regulatory clearance from the German Federal Cartel Office and the European Commission under the so-called EU Merger Regulation.

"I like this as an investment," said Michel Nadeau, a former Caisse vice-president who now leads the Institute for Governance in Montreal as executive director.

"It's much better than the other options. Staying in cash? That'll give you nothing. Stocks will likely correct sooner rather than later. Bonds will lose value as interest rates rise. The beauty of this is that it's a private investment with recurring revenues."

British Chancellor of the Exchequer George Osborne announced the government's intention to sell the Eurostar stake last October as part of a plan to raise £20-billion from various public asset sales to pay down debt. Opposition lawmakers from the Labour Party, as well as the RMT rail union have expressed apprehension about selling Eurostar, saying it could lead to more British infrastructure falling into foreign hands.

Said Mick Cash, general-secretary of the RMT union: "The French and Belgians think we are insane knocking off such a valuable and strategic infrastructure asset."

The Caisse has an existing partnership with SNCF. Both companies are shareholders in Keolis, a public transportation provider based in France that runs a regional high-speed train line in southeast England.

Mr. Tall said the relationship helped spark the Eurostar deal. "We're broadening and continuing to build on that quality relationship [with them]," he said.