NOVEMBER 4, 2010, 12:05 P.M. ET

HSBC Sells Rail Unit for $3.38 Billion

By MARIETTA CAUCHI And JESSICA HODGSON

LONDON—HSBC Holdings PLC said Thursday it has sold its train rolling-stock unit to an infrastructure group including Morgan Stanley, 3i Infrastructure PLC and Star Capital for £2.1 billion ($3.38 billion).

The consortium, named Eversholt Investment Group, has long been in exclusive talks to acquire the asset, and has been conducting due diligence—looking at detailed financial information—for nearly five months following a drawn-out sale process.

The three members of the consortium put £176 million equity each into the deal with the balance being financed with debt. While this is a large slug of debt, rolling stock will provide a steady cash stream with which to fund interest payments.

"We are delighted to be acquiring Eversholt," said Neil King, partner in the infrastructure team at 3i Investments PLC, which manages 3i Infrastructure. "Its strong market share, well-diversified customer base and high-quality cash flows from leases contracted over the medium to long term make this an attractive asset with strong infrastructure characteristics."

With this deal, Eversholt becomes one of the three leading rail rolling-stock companies in the U.K., owning about 29% of the total British rail fleet with 19 fleets of rolling stock, specifically designed and built for the U.K. rail network. The fleets are leased to seven train-operating companies and revenue is primarily derived from long-term lease payments.

HSBC originally put up the asset for sale at the beginning of the year, but the process became convoluted, with several potential bidders apparently losing interest. Nevertheless, the final sale price topped the approximately £2 billion that it was expected to generate.

The sale represents the last exit by a U.K. high-street bank from the rail rolling-stock industry. Royal Bank of Scotland Group PLC and Spain's Banco Santander SA have sold out of holdings in this formerly nationalized industry.

In June 2008, RBS agreed to sell its train leasing firm, Angel Trains, to a consortium led by Babcock & Brown, now Arcus Infrastructure. Abbey National, a U.K. bank now owned by Santander, later disposed of its Porterbrook unit to a consortium including Deutsche Bank AG, Lloyds Banking Group Inc. and Antin Infrastructure Partners.

Write to Marietta Cauchi at marietta.cauchi@dowjones.com and Jessica Hodgson at jessica.hodgson@dowjones.com

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