Private investors left with no way out
Saturday 11 March 1995
As a public relations disaster it ranks unquestionably among the most spectacular. The question is whether the Treasury and its advisers were negligent in their handling of the £4bn offer for the remaining shares in the two power generators, in effect conning the public and institutions into subscribing.
For the one million private investors who bought the new shares in National Power and PowerGen, it has proved a sharp lesson in the risks of equities. The price of their partly-paid shares, which started trading at a premium on Monday, collapsed barely 24 hours later after the industry regulator, Professor Stephen Littlechild, said he was reviewing electricity price controls that he announced just seven months ago.
Outraged City and overseas institutions concluded that they had been misled, furious that what they see as price-sensitive information was not included in the prospectus.
Some UK institutions are threatening not to pay for their shares, which would force the Government to resell them. Others, notably big overseas investors, have already dumped stock in protest at the handling of the sale and more could follow. Neither prospect bodes well for the share prices.
The private investor is left wondering whether he or she has been conned, and if so, what action to take when the share certificate arrives - the respective answers being yes and nothing.
As far as the underlying investment is concerned the fundamentals are largely unchanged. This was never a stagging opportunity. The attraction of the offer was the high dividend yield on the partly-paid shares and the price incentives were designed to encourage long-term ownership.
What has changed is investor confidence in the regulator, whose duty is to users. Investors in utilities like to see a stable environment. This week's price review does not directly affect the two generators but the fear is that Professor Littlechild could increase the pace of competition there too.
The institutions can afford to dump stock. But the private investor is being advised to hold on while they do. Last night National Power, the larger of the two generators, closed at 173.5p against the 170p retail offer price. PowerGen finished the week all square at 185.5p. Nevertheless, the share prices have taken a fundamental knock from Professor Littlechild's initiative, losing first-day premiums of 16p and 13p respectively, and it would be optimistic to expect a rapid bounce.
"It would be wrong to bail out early,'' said Chris Rowland, European electricity analyst at Merill Lynch. He is advising furious institutional clients to stick with it.
On the question of whether price-sensitive information was excluded from the prospectus, the Government is adamant. Tim Eggar, the energy minister, denied that investors had been conned, claiming that while discussions with Professor Littlechild had been going on for months the Government was unaware until Monday afternoon that he had decided to proceed with the review.
The City was infuriated. "If there was even a risk of this happening then it was negligent not to bring it to the public's attention,'' one analyst said.
Others point to the pulping of the original prospectus one working day before intended publication as proof that the Government's advisers never got to grips with the regulatory issues. John Reynolds at James Capel, said: "It is clear that the brokers to this issue did not fully understand the regulatory implications. These should have been highlighted more.''
For many private investors, the damage is exacerbated because they are also shareholders in the regional electricity companies. When the RECs were floated in 1990 the new private shareholders were automatically registered for the initial sale of the generating companies in March 1991. Over the week the value of the RECs has been savaged.
The Treasury has adopted a Pontius Pilate approach, claiming that while it knew Professor Littlechild was pondering such a move, it did not know whether he would proceed.
Strictly speaking, the Treasury is on safe ground. Its lawyers have been over the prospectus with a fine tooth comb. Certainly there are many references to regulatory uncertainty. That means that any claim for compensation is unlikely to succeed.
The Treasury has more than discharged its duty to get the best price for the taxpayer. But it stands accused of riding roughshod over investors. Unfortunately there is nothing the private investor can do about it.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – and warns Obama of more to come
- 2 ALS ice bucket challenge co-founder Corey Griffin drowns aged 27
- 3 Cilla Black defends Cliff Richard: 'I am positive that the allegations are without foundation'
- 4 Nicki Minaj finally releases predictable 'Anaconda' video
- 5 James Foley 'beheading': Met police warn public watching murder video could be criminal offence
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Isis threat: Cameron wants an alliance with Iran
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
Richard Dawkins on babies with Down Syndrome: 'Abort it and try again. It would be immoral to bring it into the world'
Scottish Independence Referendum: Salmond described as 'arrogant, ambitious and dishonest' by Scottish women
iJobs Money & Business
£45000 per annum: Harrington Starr: Quantitative Analyst (Financial Services, ...
Negotiable: Harrington Starr: Application Support Engineer (C++, .NET, VB, Per...
£450 - £600 per day: Harrington Starr: AIFMD Business Analyst / Consultant - I...
£450 - £600 per day: Harrington Starr: Business Analyst Solvency II SME (Pilla...
Day In a Page
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony