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Analysts consider Estonian Railways' future track

  • 2004-03-25
  • By Aleksei Gunter
TALLINN - Estonian Railways has been at the center of speculation in Estonia's transit industry, as the company has been preparing itself for a new law on railways and possibly even an initial public offering for investors.

Meelis Atonen, Estonia's minister of economic affairs and communications, has previously said that the state welcomed the public listing of partially state-owned enterprises such as Estonian Railways, as going public presumes that companies meet strict transparency requirements.
Atonen added, however, that the government does not wish to reduce its stake in Estonian Railways.
"The state plans neither to reduce its stake [in Estonian Railways], nor to take its stake to the stock exchange. It is only possible to list the stake that belongs to other shareholders. Such a proposal has not been made," Atonen said.
"Theoretically, listing on the stock exchange would provide transparency of company management, which is positive," he added.
Privatized in 2000, Estonian Railways is owned by Baltic Rail Services (66 percent), led by U.S. and Estonian investors, and the government (34 percent). Since the privatization, the new stakeholder has been actively replacing the locomotive fleet and recently acquired 850 new tank and fertilizer wagons. In total, the new owners have invested about 44 million euros per year in the enterprise.
Transit from Russia makes about 85 percent of Estonian Railways' traffic operations, half of which involves oil freights.
According to national legislation, at least 25 percent of the shares of a company must be publicly accessible in order to be listed on the stock exchange. In the case of Estonian Railways, Baltic Rail Service cannot reduce its stake in the company without the permission from the government, and vice versa, according to the privatization agreement.
Fast track to the trading floor?
Sven Kunsing, director of the market analysis division of Eesti Uhispank, said that any new listing on the stock exchange was welcome by investors, who are constantly seeking investment alternatives.
Priit Koit, partner of Suprema Securities, said a report on a possible Estonian Railways IPO would be presented to the company this week.
"We are confident that the current situation is very favorable for bringing the shares of new companies to the Tallinn Stock Exchange. The demand for the shares of Estonian companies exceeds the offer and emission of every strong enterprise would sell out at attractive price levels," Koit said.
He explained that due to the investors' growing interest in Baltic stock demand for stock was high, as after May 1 the local market will become more open to conservative investors, such as pension funds, throughout the European Union.
"At the same time the growth of resources managed by the Estonian pension funds continues. This year another billion kroons will likely be added," Koit said.
On the other hand, he continued, a lack of interesting options exists, and the possible sale of the state shares of Eesti Telekom to TeliaSonera and the obligatory redemption offer that will follow could take one of the most interesting companies out of the stock exchange that would further reduce the offer.
"Today only up to 5 percent of the resources managed by the Estonian pension funds is invested into stock of Estonian companies. For pension funds and private individuals the shares of major infrastructure enterprises would suit for long-term investments just fine," said Koit.
Full steam ahead
The new Estonian law on railways, which will go into effect beginning April 1, is designed to further liberalize railway services and compel Estonian Railways to compete on an equal basis with other operators for traffic quotas.
Currently 80 percent of quotas are allocated to Estonian Railways pursuant to the original privatization agreement.
Another planned development is the reorganization of the railways department under the Ministry of Economic Affairs and Communications (in connection with EU requirements to separate authorities dealing with technical control from those distributing the traffic quotas).
The new law will provide the authorities - namely the railway inspectorate - with more access to Estonian railways' accounting documents, which in turn will foster greater transparency.
Priit Koff, spokesperson for Estonian Railways, said that the company would only "feel" its real effect in 2005 when the traffic quotas competition will become open for everybody on equal terms.
According to the railway regulations package presented by the European Commission last week, Estonia's cargo and passenger railway markets are to become open to other EU operators from 2007 and 2010, respectively.
Experts from the Ministry of Economic Affairs and Communications suggest that new operators are unlikely to come to Estonia before the completion of the ambitious Rail Baltica project scheduled for 2015.