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Royal Mail share buyers profit as price soars Royal Mail share buyers profit as price soars
(about 4 hours later)
The 690,000 people who managed to buy £750 of Royal Mail shares have made an instant paper profit of more than £250 after the shares soared by 35% when they started trading on Friday. The 690,000 people who managed to buy £750 of Royal Mail shares have made an instant paper profit of almost £250 after the shares soared by 35% when they started trading on Friday.
Royal Mail shares, which the government sold at 330p, started trading at 450p on Friday morning and peaked as high as 459p before settling at 445p at 9am. Royal Mail shares, which the government sold at 330p, started trading at 450p on Friday morning and peaked as high as 459p before settling at 435p at 12:30pm.
The steep share price rise will heighten accusations that the government "massively shortchanged" taxpayers by significantly undervaluing the 500-year-old national institution.The steep share price rise will heighten accusations that the government "massively shortchanged" taxpayers by significantly undervaluing the 500-year-old national institution.
Royal Mail's market value has risen by more than £1.1bn to £4.5bn. The government valued the company at a maximum £3.3bn, and attacked analysts who valued Royal Mail at £4.5bn as "way out". Royal Mail's market value has risen by £1bn to £4.3bn. The government valued the company at a maximum £3.3bn, and attacked analysts who valued Royal Mail at £4.5bn as "way out".
If the government had sold the shares at 450p, rather than 330p, it would have made an extra £700m for the taxpayer on top of the £2bn it made from the 60% stake in Royal Mail. If the government had sold the shares at 450p, rather than 330p, it would have made an extra £600m for the taxpayer on top of the £1.7bn it made from the 52% stake in Royal Mail. Sources close to the transaction said: "The way the book-building process works, institutions would not have bid in the book at that price for sure."
Chuka Umunna, Labour's shadow business secretary, said: "Royal Mail is being sold off on the cheap with taxpayers being shortchanged to the tune of hundreds of millions of pounds. Yet out of touch ministers have ploughed on regardless and claimed this is a 'triumph'. Katy Clark, a Labour MP who sits on the business, innovation and skills committee, said: "The government was warned that this sale was undervalued and the news today suggests that this was the case. They should not have gone ahead on this basis."
"Increasingly this privatisation is looking like a botched job from an out-of-touch government that puts the wrong people first." Billy Hayes, the general secretary of the Communication Workers Union (CWU), which represents more than 100,000 postmen and women, said: "Privatisation is about greed. I think Vince Cable is one of the cleverest men in the government, but he's made one of the stupidest mistakes in politics on privatising Royal Mail."
Billy Hayes, the general secretary of the Communication Workers Union (CWU), which represents more than 100,000 postmen and women, said Cable had made "one of the stupidest decisions he is ever likely to make as a politician". Frances O'Grady, general secretary of the TUC, tweeted: "Privatising #RoyalMail has become little different from selling five pound notes for four quid."
"This is a sham, really. The company has been undervalued," he told the BBC's Today programme. "It's basically David Cameron rewarding his mates in the City. Vince Cable, one of the cleverest men in British politics, has made one of the stupidest decisions he is ever likely to make as a politician." The National Audit Office said it would investigate the pricing of the float.
Cable dismissed the huge share price rise as "froth" and said people should concentrate on the long-term future the government has secured for Royal Mail as a listed company. Cable dismissed the huge share price rise as "froth and speculation" and said people should concentrate on the long-term future the government has secured for Royal Mail as a listed company.
Stockbrokers Peel Hunt said: "This is not 'froth'; it's real people buying, selling, averaging down." Ian Murray, Labour's shadow minister for postal affairs, tweeted: "Looking forward to Vince Cable's next Lib Dem Focus leaflet bearing the headline '£600m loss to taxpayer just froth'."
More than 100 million shares had been sold within the first hour of trading on the London stock exchange on Friday. Private investors who bought their shares directly from the government will have to wait until at least Tuesday to sell their shares. Stockbrokers Peel Hunt said: "This is not 'froth'; it's real people buying, selling."
More than 100m shares had been traded within the first hour on the London stock exchange on Friday. Private investors who bought their shares directly from the government will have to wait until at least Tuesday to sell their shares.
About 690,000 people were granted 227 Royal Mail shares worth £749.10 (at the 330p float price) following overwhelming public demand for the shares.About 690,000 people were granted 227 Royal Mail shares worth £749.10 (at the 330p float price) following overwhelming public demand for the shares.
The public applied for more than seven times the number of shares available to them, which meant nearly everyone did not get as many shares as they had asked for.The public applied for more than seven times the number of shares available to them, which meant nearly everyone did not get as many shares as they had asked for.
More than 36,000 people who applied for over £10,000 worth of shares were prevented from buying any at all. More than 36,000 people who applied for over £10,000 worth of shares were prevented from buying any at all. Of those about 40 people applied for more than £1m worth of shares.
"[They are] the very rich – [we] said to them we can't give it to you," Cable told the Today programme."[They are] the very rich – [we] said to them we can't give it to you," Cable told the Today programme.
City investors, hedge funds and pension funds applied for more than 20 times the number of shares available to them. City investors, hedge funds and pension funds applied for more than 20 times the number of shares available to them. More than 800 City investors applied for shares, with 500 being left empy handed.
Cable said institutional demand was so strong that the government was able to block shares from going to "spivs and speculators" in favour of "responsible long-term institutional investors". Sources close to the transaction said 90% of the shares reserved for the City went to "responsible institutional investors" such as pension funds. Investors include Threadneedle, Fidelity, Blackrock and Standard Life.
The institutional investors who were granted shares include the sovereign wealth funds of several other countries, including those of Kuwait and Singapore. However, the remaining 10% of shares have been granted to "other investors", including hedge funds. Cable had said that the government would block the shares from going to "spivs and speculators".
The National Audit Office will hold an inquiry into whether the government undervalued Royal Mail at the taxpayer's expense. It is understood that about 20% of the shares available have gone to sovereign wealth funds – including those of Kuwait, Norway and Singapore – and other foreign funds.
Royal Mail's 150,000 employees collected 10% of the shares free of charge, worth about £2,200 each at the flotation price and now worth £2,900. Employees were also allowed to buy a further £10,000 worth, but are not allowed to sell for three years.
Billy Hayes said the share price rise would not make "one scintilla of difference" to employees' widely expected intention to vote for strike action on Wednesday. Days of nationwide industrial action could start as soon as 23 October.
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