Thameslink: The inside track on Siemens’ largest UK rail transport deal

Source: Rail Technology Magazine Aug/Sept 2013

The Thameslink signing is a landmark for Siemens UK, but also a milestone for project financing in the post-recession environment, says Johannes Schmidt, CEO of Project & Structured Finance Infrastructure and Cities & Industry at Siemens Financial Services (SFS).

Reaching financial close on the Thameslink Rolling Stock Project (TRSP), part of the wider £6bn Thameslink Programme rail network upgrade, is a good moment to reflect on the financing of infrastructure projects more generally. The Thameslink deal is Siemens’ largest UK infrastructure project to date and represents a landmark in the company’s 170-year history in the UK, as well as an indication of the benefits that in-house finance solutions can provide. 

Including the TRSP order, Siemens now has close to 3,000 rail vehicles in supply throughout the UK, positioning the company as a market leader in this segment of the transport sector. 

For this project Siemens Financial Services (SFS), through its subsidiary Siemens Project Ventures GmbH (SPV), entered into a jointly-owned consortium partnership – Cross London Trains (XLT) – alongside equal equity investors Innisfree Ltd and 3i Infrastructure Plc. The TRSP contracts for the “design, production, commissioning, maintenance, financing and making available of the rolling stock” of 1,140 Desiro City EMU train carriages to be purchased from Siemens Plc (Siemens UK company) and to lease these trains to the operator of the Thameslink rail franchise. 

The contract also includes the “design, construction, commissioning, financing and making available” of two new Thameslink rolling stock maintenance depots at Hornsey in north London and Three Bridges in West Sussex. 

Rolling stock innovation 

For the Thameslink project Siemens invested some €50m in the development of a new train platform. The new Desiro City, designed for suburban, regional and mainline transport, reduces overall energy consumption and track wear by up to 50% compared to predecessor models. These trains are up to 25% lighter than the existing Desiro UK fleet, thanks mainly to car bodies of lightweight aluminium construction and to bogies that are approximately one-third lighter in weight. The Desiro City also has a recycling quota of about 95%.

The Desiro City Thameslink trains can be coupled to form eight- and 12-car trains and operated in dual mode (750 V DC or 25 kV AC). They are built for a top speed of 160km/h or around 100mph. Siemens on-board units (OBU) that meet the requirements for the European Train Control System (ETCS) Level 2 safeguard the communication between the trains and trackside equipment. A heating, ventilation and air-conditioning (HVAC) system equipped with CO2 sensors automatically controls the flow of fresh air according to the number of passengers in each car. Although the trains will be manufactured at the Siemens factory in Krefeld, Germany, Siemens has sought to incorporate the UK supply chain into the process where possible. The first trains will enter service in 2016. 

Value for money 

A vital aspect of the Thameslink deal was, of course, its financing structure. Indeed, the solid financing package put together by SFS was a key factor in convincing the Department for Transport (DfT) that the deal represents the best value-for-money for the UK taxpayer while also remaining attractive for private investors.In this case, a hybrid Private Finance Initiative/Public Private Partnership (PFI/PPP) and lease arrangement for both the rolling stock and the two depots was put in place, supported by a UK Railways Act 1993 s.54 undertaking. This regulation encourages investment in assets for the provision of franchise rail services by guaranteeing continued use of the rolling stock beyond the original operator-franchisee agreement (subject to satisfactory performance).  

The deal has been financed with a debt facility arranged through a syndicated loan group consisting of 19 banks with SMBC, Lloyds, KfW and BTMU acting as mandated lead arrangers (MLAs), alongside a debt facility from the European Investment Bank. 

The Siemens-XLT consortium was advised by Barclays Capital throughout the financing arrangements. 

Meanwhile, the two depots have been financed exclusively by Siemens Financial Services. 

SFS’s Project & Structured Finance Infrastructure and Cities & Industry team, together with 3i and Innisfree, have structured the financing based upon an appropriate level of risk transfer to the private sector. This enabled Cross London Trains to raise substantial levels of debt, and thereby achieve best value for money for the DfT and ultimately the taxpayer.

The role of an in-house financier 

As an in-house financier, SFS’s role on such transactions is to support and, when required, to lead the financing of deals involving a high level of Siemens content. In the case of the Thameslink contract, SFS played an integral role in structuring and negotiating the financing terms of the deal, as well as acting as a catalyst in order to build stakeholder and partner confidence in the project. Certainly, SFS’s strong investment encouraged other investors on both the debt and equity sides of the transaction. 

Ultimately, the deal complements Siemens’ strong track record in healthcare, energy and industrial infrastructure with a leading role in the UK rail sector, and further strengthens Siemens’ overall global infrastructure portfolio. It is also a strong statement of intent regarding the company’s commitment to providing smart solutions to the largest infrastructure challenges that are shaping the landscape of tomorrow’s global economy. 

In the case of the Thameslink deal, SFS brought a full-suite of financing solutions to the table, including funding both debt and equity tranches for the rolling stock supply and maintenance, and the depot construction and operation. 

Whether acting in a specialist advisory, structuring or relationship building capacity, SFS’s leadership galvanised stakeholder confidence and built critical momentum for the project, playing a central role in securing the Thameslink contract and achieving this landmark in Siemens’ long history in the UK.


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