Railtrack investors annoyed but better off

LONDON, England (CNN) -- Railtrack shareholders were united in their indignation last October, when the UK government's refusal to pump in more cash forced the rail network company into administration.

The move, which took place on a Sunday when markets were closed, left investors with no way of selling their shares, which have been suspended from trading ever since.

Most market watchers predicted the stock, which last traded at 280 pence before suspension, was effectively worthless.

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That was before a government u-turn on compensating investors. Thursday's agreement to hand the UK rail network to the new, government-backed Network Rail will wipe out Railtrack's debts of $10.7 billion and leave shareholders with about 250 pence a share when the company is liquidated.

On Thursday, the shares started trading again, changing hands initially at around 220 pence. That's below the expected per-share return from breaking up Railtrack (RTK), because investors will have to wait at least until January to get their hands on the liquidation proceeds.

Over the 9 1/2 months since the shares were suspended, Railtrack investors have suffered a 21 percent drop in the value of their stock.

That means they've underperformed the FTSE 100 index, which is down just over 10 percent in that time -- and no doubt some will still harbour resentment towards the government that forced their company off the tracks. But their Railtrack stock, remarkably, has performed better than many of the London market's leading shares.

Since Railtrack was suspended, shares of Vodafone (VOD), one of the UK's highest-profile companies, have slumped more than 40 percent, hit by dwindling expectations of the growth outlook in the mobile phone market.

Even in less volatile sectors, respected UK companies have languished. If you could have swapped your Railtrack shares for stock in GlaxoSmithKline (GSK), you'd have lost out too: the biggest UK drugmaker is down 28 percent since early October.

And in the normally safe-and-steady insurance industry, Prudential, the second biggest player in Britain, has suffered a 25 percent share price slide in the same time span. Insurers' problems have escalated as falling stock markets make it harder for them to meet their financial commitments.

That's only a limited consolation for Railtrack shareholders, though. Thousands of them bought their shares when the company was floated in May 1996, at what now looks like a pricey 380 pence. And spare a thought for anyone who pitched in when enthusiasm for the stock was at its peak, taking it to an all-time high of more than 1,700 pence in November 1998.