Network Rail begins inflation-linked debt push

UK railway operator Network Rail’s issue of a 30-year index-linked sterling bond at the end of April is the first step in a three-year, £6.6 billion plan to shift a third of its debt into linkers by 2009. Pricing and size are not yet available, but the company said it will release these details at the end of next week.

Samantha Pitt, Network Rail’s head of corporate finance, said the next linker could be produced within months. “The first issue was based on consultation with investors, who wanted the 20-30-year part of the curve.”

The company has £18 billion in debt at present, of which 5% is inflation-linked. Pitt said the company planned to increase this to £22 billion by 2009, and that “we are trying to maintain a similar level [of index-linked debt issuance] to the Debt Management Office and other utilities” – implying that around 30% of the total portfolio would be index-linked.

The company intends to issue one or two more large benchmark linkers, with maturities of between 15 and 45 years, with the objective of building up a curve, said Russell Maybury, managing director of corporate debt capital markets at Royal Bank of Scotland Financial Markets in London.

Pitt says this announcement opened the way for much greater use of inflation-linked debt: “It gave us confidence that our revenues would continue to be inflation linked in the long term. We wouldn’t want to issue linked debt without confidence in the link to revenues.”

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