BR stock sold too cheaply, says Tory

MERCHANT bankers failed to secure the best possible price for a key part of the old British Rail during privatisation, according to the Conservative chairman of a key parliamentary committee.

The failure by Hambros, now part of the SG Group, to persuade potential investors to raise their bids led directly to the creation of multi-millionaires in the board rooms of the privatised companies when they were sold on, said David Davis of the Commons Select Committee of Public Accounts.

Former British Rail managers at three rolling stock companies made "windfall gains" of between pounds 15m and pounds 33m, the committee said in a report published yesterday.

The then Department of Transport sold the businesses in early 1996 for a gross figure of pounds 1.8bn, but two years later they were bought for pounds 2.7bn.

The report argued that the bankers were too keen to close the deals and that there should have been some kind of "clawback" arrangement in the event of the companies being sold or excessive profits made.

A spokesman for Hambros said the report failed to paint a clear picture of the uncertain political and commercial background to the sale. A clawback arrangement would have deterred bidders by restricting potential returns on their investment, he said.

He added it was true that merchant bankers sought to close deals as quickly as possible, but Hambros was also under an instruction from the government to complete an agreement before the end of 1995. "Internal pressure to complete the deal was as nothing to the demands made by government, which wanted the sale to be a springboard for privatisation of the railway network."