Rolling stock decision looms for Toll NZ

Rail operator Toll NZ Ltd has to decide this year whether or not to buy back rolling stock that was sold and leased back by predecessor Tranz Rail.

In December 1996 Tranz Rail sold and leased back 15 per cent of the company's rolling stock.

It got $131.5 million cash up front and assumed a lease liability for a period of 12 years. The lease ends on December 19, 2008.

The transaction was one of a number of financial engineering feats carried out by Tranz Rail to free up cash. But Tranz Rail was on the brink of collapse in 2003 when Australian company Toll Holdings moved to take control. Toll Holdings is currently buying out remaining shareholders to take 100 per cent ownership.

According to an independent report by Grant Samuel as part of the takeover process, Toll NZ will have to pay up to buy back rolling stock previously sold.

At the end of the lease it has an option to purchase all of the rolling stock for $US25.2m ($NZ36.6m) or return the equipment to the lessor and make a final, once and for all payment of $US9.3m.

The decision about whether to repurchase the rolling stock or return it to the lessor must be made by December this year.

Rolling stock is an industry term that applies to both locomotives and wagons. Much of Toll NZ's rolling stock is run down care of years of under-investment and workers are frustrated about the standard of the equipment they have to work with, according to the main rail union.

Toll NZ has been holding off big decisions on investment in rolling stock until it agrees access fees to the Government-owned track that give it a satisfactory return on investment.