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.
Scottish Power hit with sales ban by regulator
There are 'dark corners' of the investment and pensions industry, says Pensions Minister
Simon Read: You're guilty until proven innocent when HMRC sends in the tax credit detectives
Midweek Money: The end (of the tax year) is nigh: act now
Weekly Money: round-up of the personal finance stories you may have missed 2 to 6 March
- 1 Tourist films plane's descent just metres above packed Caribbean beach
- 2 Kate Moss: Previously unpublished nude photo revealed by Mert and Marcus
- 4 World Book Day: Boy 'excluded' from school after dressing up as Fifty Shades' Christian Grey
- 5 Bad Jews poster 'censored' on London Tube
Nearly 100,000 of Britain's poorest children go hungry after parents' benefits are cut
Durham Free School: 'Creationism taught at' free school facing closure
End of the licence fee: BBC to back radical overhaul of how it is funded
Elif Shafak: Turkish author warns against rise of British nationalism
Most people think legal tax avoidance is just as wrong as illegal tax evasion, poll suggests
Nigel Farage promises Ukip will not 'stigmatise' would-be migrants – and says he wants 'everyone to speak the same language'
iJobs Money & Business
£13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...
£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...
£12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...
£8 per hour: Recruitment Genius: This Pension Specialist was established early...
Day In a Page
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
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