INTRO: DB’s ability to qualify for a stock market listing depends on the prevailing economic conditions and on the political situation, argues Ralf Roman Rossberg

KEYSTONE of the programme of reforms begun in 1994 was to ensure that DB would become financially self-sufficient and thus able to enter the capital markets. In other words, the state-owned railway authority had to become a fully-fledged commercial business in the transport market - no more and no less. As a privately-structured organisation, it would no longer be subject to political directions and obligations. Efficiency and the ability to compete would become the organisation’s guiding principles.

DB’s medium-term financial planning has long been based on the railway moving into the black in the 2004 financial year. A profit of €400m is forecast to rise to €1·6bn by 2007. The difficulty with this lies in the assumptions on which it is based, as meeting the objective depends on the political framework and the amount of public funds available to the railway. Precisely when the economic climate is poor, the railway is often required to make internal savings to make good shortfalls in state funding so that financial performance targets are met.

Achieving cost savings in the labour-intensive railway business may sooner or later mean job losses. No wonder, then, that Germany’s trade unions are opposed to the reform programme and are seeking to turn back the clock towards a state-run railway.

DB’s Board Member for Finance Diethelm Sack wants to press ahead as quickly as possible so that DB can have access to the capital markets. Every delay weakens DB’s ability to compete, he says, leading to loss of contracts and market share. But the aim of the reform is to win more traffic to rail.

DB’s management is charged with preparing the railway for a stock market listing, and only the state, as DB’s owner, will decide whether or not this will happen. The government has set up a committee that includes Secretaries of State who are members of the DB board, and this committee will submit its findings by the end of this year. Advice on detailed questions and the process of a possible sale is being sought from Morgan Stanley.

Insiders consider it likely that 20% to 25% of the state-owned shares in DB will be put on sale to international investors in 2005. Japanese investors are thought to be paying close attention to developments in Germany. Whether the railway’s finances will be sound enough in 2005 for a sale to go ahead remains to be seen.