Private investors left with no way out

POWER SALE

BY SIMON PINCOMBE

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; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Life and Style
Fans line up at the AVNs, straining to capture a photo of their favourite star
life Tim Walker asks how much longer it can flesh out an existence
Life and Style
Every minute of every day, Twitter is awash with anger as we seek to let these organisations know precisely what we think of them
techWhen it comes to vitriol, no one on attracts our ire more than big businesses offering bad service
News
Professor David Nutt wants to change the way gravely ill patients are treated in Britain
people Why does a former Government tsar believe that mind-altering drugs have a place on prescription?
News
Norway’s ‘The Nordland Line – Minute by Minute, Season by Season’ continues the trend of slow TV
television
Arts and Entertainment
art
Sport
Jonny Evans has pleaded not guilty to an FA charge for spitting at Papiss Cisse
football
Life and Style
Kate Moss will make a cameo appearance in David Walliams' The Boy in the Dress
fashion
News
The image released by the Salvation Army, using 'The Dress'
news
Sport
Liverpool defender Kolo Toure
football Defender could make history in the FA Cup, but African Cup of Nations win means he's already content
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Customer Relations Officer

    £13000 per annum: Recruitment Genius: This is an exciting opportunity to join ...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Jemma Gent: Project Coordinator

    £12 - £15 Hourly Rate: Jemma Gent: In this role you will report to the Head of...

    Recruitment Genius: Evening Administrator

    £8 per hour: Recruitment Genius: This Pension Specialist was established early...

    Day In a Page

    Homeless Veterans campaign: Donations hit record-breaking £1m target after £300,000 gift from Lloyds Bank

    Homeless Veterans campaign

    Donations hit record-breaking £1m target after huge gift from Lloyds Bank
    Flight MH370 a year on: Lost without a trace – but the search goes on

    Lost without a trace

    But, a year on, the search continues for Flight MH370
    Germany's spymasters left red-faced after thieves break into brand new secret service HQ and steal taps

    Germany's spy HQ springs a leak

    Thieves break into new €1.5bn complex... to steal taps
    International Women's Day 2015: Celebrating the whirlwind wit of Simone de Beauvoir

    Whirlwind wit of Simone de Beauvoir

    Simone de Beauvoir's seminal feminist polemic, 'The Second Sex', has been published in short-form for International Women's Day
    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Mark Zuckerberg’s hiring policy might suit him – but it wouldn’t work for me

    Why would I want to employ someone I’d be happy to have as my boss, asks Simon Kelner
    Confessions of a planespotter: With three Britons under arrest in the UAE, the perils have never been more apparent

    Confessions of a planespotter

    With three Britons under arrest in the UAE, the perils have never been more apparent. Sam Masters explains the appeal
    Russia's gulag museum 'makes no mention' of Stalin's atrocities

    Russia's gulag museum

    Ministry of Culture-run site 'makes no mention' of Stalin's atrocities
    The big fresh food con: Alarming truth behind the chocolate muffin that won't decay

    The big fresh food con

    Joanna Blythman reveals the alarming truth behind the chocolate muffin that won't decay
    Virginia Ironside was my landlady: What is it like to live with an agony aunt on call 24/7?

    Virginia Ironside was my landlady

    Tim Willis reveals what it's like to live with an agony aunt on call 24/7
    Paris Fashion Week 2015: The wit and wisdom of Manish Arora's exercise in high camp

    Paris Fashion Week 2015

    The wit and wisdom of Manish Arora's exercise in high camp
    8 best workout DVDs

    8 best workout DVDs

    If your 'New Year new you' regime hasn’t lasted beyond February, why not try working out from home?
    Paul Scholes column: I don't believe Jonny Evans was spitting at Papiss Cissé. It was a reflex. But what the Newcastle striker did next was horrible

    Paul Scholes column

    I don't believe Evans was spitting at Cissé. It was a reflex. But what the Newcastle striker did next was horrible
    Miguel Layun interview: From the Azteca to Vicarage Road with a million followers

    From the Azteca to Vicarage Road with a million followers

    Miguel Layun is a star in Mexico where he was criticised for leaving to join Watford. But he says he sees the bigger picture
    Frank Warren column: Amir Khan ready to meet winner of Floyd Mayweather v Manny Pacquiao

    Khan ready to meet winner of Mayweather v Pacquiao

    The Bolton fighter is unlikely to take on Kell Brook with two superstar opponents on the horizon, says Frank Warren
    War with Isis: Iraq's government fights to win back Tikrit from militants - but then what?

    Baghdad fights to win back Tikrit from Isis – but then what?

    Patrick Cockburn reports from Kirkuk on a conflict which sectarianism has made intractable