German withdrawal leaves Railtrack stranded on the line

German bank WestLB is planning to pull out of the competition to buy Railtrack plc out of administration, leaving no private bidders for the failed track operator.

Instead, WestLB is in talks about joining the Government-backed Company Limited by Guarantee (CLG), to be financed through the bond market. The revelation will make a mockery of the administration process, as Transport Secretary Stephen Byers had hoped for a clutch of private bidders vying for Railtrack. Last week it emerged the only other serious contender, US finance house Babcock & Brown, was also on the verge of pulling out of the race.

WestLB's bid was through the specially formed company Swiftrail, chaired by corporate troubleshooter David James. Last week Mr James held meetings with CLG chairman Ian McAllister about joining the group.

While nothing has yet been finalised, the plan is understood to have received a tentative nod from Mr McAllister. WestLB became dismayed by the way the Government and Railtrack's administrator Ernst & Young were preparing to hold the bidding competition, due to begin at the end of the month.

Like Babcock & Brown, the German bank is thought to have been worried about the costs of bidding and concerned that the process would be skewed in favour of the CLG. If the CLG is selected to take over Railtrack it will be funded by bonds secured against the income it receives from track access charges paid by train-operating companies. WestLB is interested in joining the CLG because it would earn millions in fees from arranging and selling the bonds to the City. WestLB refused to comment, but it is understood the bank is willing to provide a debt facility to the CLG.

The ailing rail network is set to receive a £1.5bn boost tomorrow when Govia, the group that takes over from Connex the running of the South Central commuter franchise, unveils its investment plans. In a deal with the Strategic Rail Authority, Govia will underwrite an investment of up to £1.5bn in new rolling stock, replacing the old slam-door trains and upgrading part of the track.

Govia is 65 per cent owned by Go-Ahead Group, the train and bus operator, with the rest of the shares held by a subsidiary of SNCF, the French state railway.