Royal Mail 'sold on the cheap' with British investors blocked

Critics hit out at 'botched fire sale' as 40,000 retail backers miss out and listing is oversubscribed

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."

Jamie Dunkley

Suggested Topics
PROMOTED VIDEO
News
ebooksAn evocation of the conflict through the eyes of those who lived through it
News
Tim Vine has won the funniest joke award at the Edinburgh Festival 2014
peopleTim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
News
people
Life and Style
techApp to start sending headlines, TV clips and ads to your phone
Arts and Entertainment
Taylor Swift crawls through the legs of twerking dancers in her 'Shake It Off' music video
musicEarl Sweatshirt thinks so
Life and Style
tech
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.

iJobs Job Widget
iJobs Money & Business

Planning Manager (Training, Learning and Development) - London

£35000 - £38000 per annum + benefits: Ashdown Group: A highly successful, glob...

Asset Finance Solicitor

Highly Competitive Salary: Austen Lloyd: CITY - ASSET FINANCE - An outstanding...

HR Analyst - Banking - Bristol - £350-£400

£350 - £400 per day: Orgtel: HR Analyst - Banking - Bristol - £350 - £400 per ...

Techincal Accountant-Insurance-Bank-£550/day

£475 - £550 per day + competitive: Orgtel: Senior Technical Accountant-Insuran...

Day In a Page

Ferguson: In the heartlands of America, a descent into madness

A descent into madness in America's heartlands

David Usborne arrived in Ferguson, Missouri to be greeted by a scene more redolent of Gaza and Afghanistan
BBC’s filming of raid at Sir Cliff’s home ‘may be result of corruption’

BBC faces corruption allegation over its Sir Cliff police raid coverage

Reporter’s relationship with police under scrutiny as DG is summoned by MPs to explain extensive live broadcast of swoop on singer’s home
Lauded therapist Harley Mille still in limbo as battle to stay in Britain drags on

Lauded therapist still in limbo as battle to stay in Britain drags on

Australian Harley Miller is as frustrated by court delays as she is with the idiosyncrasies of immigration law
Lewis Fry Richardson's weather forecasts changed the world. But could his predictions of war do the same?

Lewis Fry Richardson's weather forecasts changed the world...

But could his predictions of war do the same?
Kate Bush asks fans not to take photos at her London gigs: 'I want to have contact with the audience, not iPhones'

'I want to have contact with the audience, not iPhones'

Kate Bush asks fans not to take photos at her London gigs
Under-35s have rated gardening in their top five favourite leisure activities, but why?

Young at hort

Under-35s have rated gardening in their top five favourite leisure activities. But why are so many people are swapping sweaty clubs for leafy shrubs?
Tim Vine, winner of the Funniest Joke of the Fringe award: 'making a quip as funny as possible is an art'

Beyond a joke

Tim Vine, winner of the Funniest Joke of the Fringe award, has nigh-on 200 in his act. So how are they conceived?
The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

The late Peter O'Toole shines in 'Katherine of Alexandria' despite illness

Sadly though, the Lawrence of Arabia star is not around to lend his own critique
Wicken Fen in Cambridgeshire: The joy of camping in a wetland nature reserve and sleeping under the stars

A wild night out

Wicken Fen in Cambridgeshire offers a rare chance to camp in a wetland nature reserve
Comic Sans for Cancer exhibition: It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans

Comic Sans for Cancer exhibition

It’s the font that’s openly ridiculed for its jaunty style, but figures of fun have their fans
Besiktas vs Arsenal: Five things we learnt from the Champions League first-leg tie

Besiktas vs Arsenal

Five things we learnt from the Champions League first-leg tie
Rory McIlroy a smash hit on the US talk show circuit

Rory McIlroy a smash hit on the US talk show circuit

As the Northern Irishman prepares for the Barclays, he finds time to appear on TV in the States, where he’s now such a global superstar that he needs no introduction
Boy racer Max Verstappen stays relaxed over step up to Formula One

Boy racer Max Verstappen stays relaxed over step up to F1

The 16-year-old will become the sport’s youngest-ever driver when he makes his debut for Toro Rosso next season
Fear brings the enemies of Isis together at last

Fear brings the enemies of Isis together at last

But belated attempts to unite will be to no avail if the Sunni caliphate remains strong in Syria, says Patrick Cockburn
Charlie Gilmour: 'I wondered if I would end up killing myself in jail'

Charlie Gilmour: 'I wondered if I'd end up killing myself in jail'

Following last week's report on prison suicides, the former inmate asks how much progress we have made in the 50 years since the abolition of capital punishment