The Government blocked 40,000 Britons seeking to buy more than £10,000 worth of shares in Royal Mail's £3.3bn privatisation in its "botched" attempt to deal with huge demand.
Around 700,000 small investors tried to buy shares, leaving the IPO seven times subscribed. Faced with the dilemma of how to balance supply and demand, ministers opted to shut out the wealthy.
The latest details of the sell-off, released last night only hours before the start of conditional trading at 8am today, revealed that 93,000 private investors who applied for between £750 and £10,000 of shares will receive 227 shares worth £749.10. But the Department for Business said anyone who applied for more than £10,000 of shares – 5 per cent of applicants – will receive none. The Government claimed this move was "in line with the treatment of larger applications in previous well-oversubscribed privatisations", but it was widely condemned.
"It is unusual to exclude some applicants altogether; there would normally be a scaling back," said Richard Hunter of the stockbroker Hargreaves Lansdown. "This will be a great disappointment to those who have missed out." The anger of these small investors will be compounded when the list of Royal Mail's major investors is unveiled. While 35,000 retail investors saw their share requests either stymied or rejected, sovereign wealth funds, including those in Kuwait and Singapore, have ordered millions of pounds worth and the Government's ambition to have a diverse investor base means they are likely to be named as major shareholders. But the Department for Business said it had awarded 33 per cent of the available shares to retail investors – slightly more than expected – with 67 per cent going to the City, pension funds and foreign sovereign wealth funds. It said 270,000 private investors will get at least half the shares they applied for.
The Business Secretary, Vince Cable, said he had "struck the right balance" in the IPO. But although shares open for conditional trading are priced at £3.30, the top end of the Government's range, critics insist that ministers woefully undervalued Royal Mail. They point out that retail investors had placed orders for £4bn of shares and institutions £23bn – a total of more than £27bn chasing stock valued at £1.7bn. "Now everyone knows that Royal Mail has been undervalued and sold on the cheap," Billy Hayes, the general secretary of the Communications Workers Union said. "The low share price is another government error compounding the mistake to sell in the first place."
The Royal Mail's 150,000 UK staff are to get 10 per cent of the shares for free, or about £2,200 each.
Chuka Umunna, the shadow Business Secretary, said: "It says it all about the Royal Mail fire sale that just hours before it is floated, the Prime Minister and Deputy Prime Minister were being dragged into emergency meetings on the Royal Mail.
"This privatisation is looking like a botched job… A centuries-old and much-loved national institution [has been] flogged off in a fire sale to fill the hole left by George Osborne's failed economic plan."
The next task for the Government is to return payments to 35,000 consumers who missed out by 21 October.
Stamp of approval for sovereign wealth funds
Some of the world's largest sovereign wealth funds are set to be allocated shares in the Royal Mail sell-off.
State-backed investment vehicles from Kuwait and Singapore were among those to apply for a stake in the postal service yesterday.
The City-based branch of the Kuwait Investment Office expressed an interest, as did the Government Investment Corporation (GIC) of Singapore, chaired by the Singapore prime minister Lee Hsien Loong. In recent years, sovereign wealth funds have snapped up assets across the world. In the UK, these range from Manchester City Football Club to the new City skyscraper, The Shard, to the supermarket giant Sainsbury's.
The foreign influx is likely to raise eyebrows, with so many British retail investors expected to miss out on Royal Mail shares, despite applying. Ministers were keen to have a geographically diverse investor base. Figures from the 2014 Preqin Sovereign Wealth Fund Review, published yesterday, reveal that the funds currently have $5.38 trillion (£3.36 trillion) under management, compared with $4.62 trillion in 2012.
The world's largest vehicle of this type is Norway's national fund, which has $775.2bn in assets under management
Amy Bensted, head of hedge fund products at Preqin, said: "Despite the challenging financial landscape and political unrest, sovereign wealth funds have continued to thrive and to grow, and this trend is predicted to continue over the next few years."
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