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Royal Mail share buyers profit as price soars Royal Mail shares soar 38% as Labour complains of knockdown price
(about 5 hours later)
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. The government has been accused of shortchanging taxpayers by selling off Royal Mail at a "knockdown price" after shares in the privatised postal service soared by 38% 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 435p at 12:30pm. Ed Miliband, the Labour leader, said the jump in the share price – which made an immediate £284 paper profit for almost 700,000 Royal Mail investors - showed the privatisation was a "fire-sale of a great British 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 stock, which the government sold to investors at 330p, leaped to 455p– the biggest one-day rise in a privatisation since British Airways in 1987.
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". Chuka Umunna, the shadow business secretary, said the steep rise showed the government "massively shortchanged" taxpayers by significantly undervaluing the 500-year-old national institution.
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." Royal Mail's market value rose by £1bn to £4.3bn – confirming that it will join the FTSE 100 list of Britain's biggest companies. The government had valued Royal Mail at a maximum £3.3bn, and had attacked analysts who valued Royal Mail at £4.5bn as "way out".
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." 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 "institutions would not have bid in the book at that price for sure".
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 postal workers, 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."
Frances O'Grady, general secretary of the TUC, tweeted: "Privatising #RoyalMail has become little different from selling five pound notes for four quid."Frances O'Grady, general secretary of the TUC, tweeted: "Privatising #RoyalMail has become little different from selling five pound notes for four quid."
The National Audit Office said it would investigate the pricing of the float. George Osborne said the privatisation had been a "huge sucess". Speaking in Washington, Osborne said: "This is something both Labour and Conservative governments have tried to do and failed."
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. Asked whether the shares had been sold too cheaply, the chancellor said: "All privatisations are done at a discount. The sensible thing to do is not to make judgments on the price the day after but wait for things to settle down, and look at it in three to six months' time."
The National Audit Office, the public spending watchdog, will investigate the pricing of the float.
Cable dismissed the huge share price rise – which was bigger than that experienced on the 1980s flotation of BT and British Gas – as "froth and speculation" and said "what matters is where the price eventually settles".
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'."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'."
Stockbrokers Peel Hunt said: "This is not 'froth'; it's real people buying, selling."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. More than 100m shares had been traded within the first hour on the London stock exchange on Friday. Stockbroker Hargreaves Lansdowne buckled under the pressure from sellers for a period.
Joe Rundle, head of trading at ETX Capital, described the share price surge as a "dazzling stock market debut".
Private investors who bought their shares directly from the government will have to wait until at least Tuesday if they want to sell.
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. Of those about 40 people applied for more than £1m worth of shares. 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 shares worth £1m or more.
"[They are] the very rich – [we] said to them we can't give it to you," Cable told the Today programme. Cable said the government told the "very big wealthy investors … you wanted a big chuck, we can't give it to you".
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. 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 empty-handed.
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.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.
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".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".
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.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.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. 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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