Canada to Offer Shares In Its National Railway

CANADIAN National, the government-owned railroad that for 76 years has been a proud national symbol stretching across the Rocky Mountains and binding together Canada's far-flung communities, is to be sold.

The government says it will sell 100 percent of Canadian National's shares, hoping to raise between $1.5 billion (Canadian; US $1.1 billion) and C$2 billion.

But the shares will not be put on the block until next fall. Share price, timing, and how big the stock issue will be will be determined by market conditions.

''It's not going to be easy,'' Transport Minister Douglas Young told reporters. ''It's the biggest [stock] issue in Canadian history.''

For most of last year, the fate of Canadian National (CN) was up in the air. A merger between CN and arch rival, the Canadian Pacific (CP) railroad, was long thought most likely. Yet a CP bid to purchase CN for about C$1 billion was rejected by the government last year as inadequate. Still, few predicted an outright sale.

Canadian National Railways is Canada's largest railroad system. It was formed and became a government-owned ''crown corporation'' in 1919 when the assets of five virtually bankrupt railroads were acquired by the government and combined into one national company.

While the company has usually done well hauling commodities long distances in the western part of the country, it has lost hundreds of millions of dollars in the more densely populated east. Intense competition from long-distance trucks and the Canadian Pacific has eroded its markets.

''A restructuring of the railway network in Canada is vital,'' says Trevor Heaver, director of the Center for Transportation Studies at the University of British Columbia in Vancouver. ''In the last two years the numbers have gone from red to black, but the fact that things are not as bad as they were doesn't mean they're viable in the long term.''

Last year, CN made C$245 million compared with a loss of C$79 million in 1993. In the first quarter of this year, the company made C$124 million, up from just C$2 million for the same period last year.

But to keep its head above waves of red ink if the economy weakens, CN must shed its heavy C$2.5 billion debt load. The federal government will forgive C$500 million of the debt in return for retaining CN's valuable real estate assets, which include Toronto's CN Tower, a major tourist attraction. Sales of other assets will pay off another C$400 million, government officials said.

Key provisions of the privatization bill presented by Mr. Young earlier this month to Parliament include:

*No restrictions on foreign ownership of CN shares, but no single shareholder can own more than 15 percent of the company.

*CN will have to keep its headquarters in Montreal.

*CN will still have to follow the Official Languages Act, regarding the use of French and English as working languages, as though it were a government company.

Paul Tellier, CN president and chief executive officer, called the government announcement ''historic'' for the company. ''We are looking forward to working with the minister of transportation to ensure that this initiative succeeds,'' he said.

The new CN will also seek to slash a big part of the more than 18,000 miles of track it operates -- much of it sparsely used. During the past three years, CN has cut more than 10,000 miles. It would especially like to halve the 8,700 miles of track it operates east of Winnipeg.

In the past, Mr. Tellier has also called for the government to permit more flexibility in dropping rail service altogether on money- losing lines -- or at least permit them to be sold to short-line railroads that can operate efficiently on smaller volumes. Not everyone agrees.

''The only way we can see growth in isolated areas is to maintain the railway there to encourage industry to locate, to settle in those areas -- that's part of the Canadian culture,'' says Theo Stol, national vice president of the Canadian Brotherhood of Railway, Transport and General Workers. ''That's the only way Canada can grow.''

But Transport Minister Young sees it another way: ''The status quo is nonsustainable,'' he said. ''I think Canadians are aware of the fact instinctively that massive restructuring is going on in the industry.... Canadian National is certainly no longer part of the national dream.''