Exclusive: Aberdeen Standard backs controversial £1bn bid for Crossrail fleet

Aberdeen Standard Investments (ASI) is backing a controversial £971m bid to acquire a fleet of 70 Elizabeth Line trains from Transport for London (TfL), Morning Wire can reveal.

The asset management giant is stumping up £147m in equity investment to Rock Rail, a rolling stock infrastructure company that finances new trains, with funding proposed from unnamed international investors, according to a confidential document seen by this newspaper.

Rock Rail will contribute £4.9m through the re-investment of the success fee, while the remaining £819m will be funded through long-term debt it issues.

Rock Rail, which entered into a similar agreement with South Western franchise operators First Group and MTR last year, is going head-to-head with investment firm Equitix for the TfL contract.

In January, TfL announced plans to sell and lease back its new Elizabeth Line fleet in order to raise money for new Piccadilly Line trains.

The Crossrail fleet will be leased to Rail for London, a TfL subsidiary, and subleased to MTR, the Hong Kong-based Crossrail operator.

TfL would be able to terminate the 35-year lease in 2020, 2025 and 2030, through a break clause, with an ability to acquire the fleet for just £1 in 2044. TfL will announce the winner at the beginning of next year.

At the time of the January announcement, chair of the London Assembly’s transport committee, Caroline Pidgeon, questioned the logic behind the proposal: “You’re going to be selling and leasing back rolling stock you’ve already got, that you wholly own, in order to give you the cash to buy new rolling stock? It sounds quite mad,” she said.

Last week the Crossrail project, which will stretch from Heathrow in the west to Abbey Wood in the east, ran into further difficulty when it was announced that the railway could need up to £2bn in funding to stay afloat. The project’s delay will cost TfL £600m in lost revenue over the next five years alone .

Pidgeon told Morning Wire that however it was “dressed up”, the agreement to sell the Elizabeth Line trains and then lease them back was a form of borrowing. “If the mayor and TfL are totally convinced that this is the cheapest way to raise finance to then fund new rolling stock for the Piccadilly Line, then they need to provide much clearer assurances than they have so far,” she said. “I remain concerned that in a desperate attempt to raise new finance TfL is building up excessively high borrowing costs that we will be paying for long after Sadiq Khan has left City Hall.”

Details of the internationally-backed bid show that ASI was initially lukewarm about offering support. The asset manager was approached by Rock Rail in September but decided to pass on the deal because its risk and return profile was not “in line” with targets. However, ASI changed its mind on receiving assurances from international investors that there was “significant appetite” for UK rolling stock.

Rock Rail and Equitix are the only bidders to have made it to round two of the process, far short of the six TfL was anticipating.

A spokesperson for TfL refused to comment on the details of the bid, but said: “As announced earlier this year, we are looking at whether we can sell and lease back the Elizabeth Line rolling stock, as we have previously done on London Overground and as is standard practice across the rail industry. We received a number of bids, which we have been assessing, and are on course to complete any transaction by early 2019.”

ASI declined to comment. Rock Rail and Equitix did not respond to requests for comment.