Sharia-compliant fund on track for Freightliner

By Ben Harrington

Last Updated: 12:30am BST 26/05/2008



The Bahrain-based investment fund Arcapita is in talks to acquire Freightliner, British Rail’s former rail haulage division, for around £350m including debt.

The fund is on the verge of entering exclusive discussions to buy the business after Freightliner’s private equity owners, 3i and Electra Partners, appointed the investment bank NM Rothschild earlier this year to sell the company.

French rail operator SNCF and Go-Ahead are also understood to have made it into the final stages of the auction and have been in negotiations to buy the business for several weeks, said sources.

If Arcapita fails to strike a deal within the next few days, it is thought SNCF and Go-Ahead could still buy the business.

Freightliner, whose wagons carry inland freight containers to inland terminals, was sold to 3i and Electra for just under £10m as part of a privatisation.

Sources said a sale to Arcapita could complete within a couple of weeks.

The possible deal comes as a growing number of gulf-based investors buy up huge amounts of British companies and infrastructure.

The new wave of private investment from the Middle Eastern sovereign wealth funds started in 2005 when Dubai Ports World bought container ports and ferry group P&O for about £3.3bn. Since then, budget hotel chain Travelodge and engineering group Doncasters have both been sold to Dubai International Capital, another division of Sheikh Mohammed bin Rashid Al Maktoum’s Dubai Holding group.

Arcapita, though, is not a sovereign wealth fund.

The group, formerly known as First Islamic Investment Bank, uses its balance sheet to make investments and then syndicates the equity to high-net-worth, Gulf investors. It also only makes investments that are compliant with Sharia law, which forbids interest payments or usury.

For Electra Partners, the sale of Freightliner follows a series of major disposals, including the $2.5bn (£1.26bn) sale of Dakota Minnesota & Eastern Railroad to Canadian Pacific Railroad.

Sources said the private equity investment group, which manages a quoted investment trust, now has €1bn (£796m) to invest in buy-outs, mezzanine debt and real estate after raising a new £100m private fund from investors.

The establishment of a new fund, which will be invested alongside capital of the quoted investment trust, comes after Electra Partners split from Electra Partners Europe in 2006. After the split, Electra Partners Europe changed its name to Cognetas.

Electra Partners and Arcapita declined to comment. 3i did not return calls


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