Vince Cable orders investigation into how Government releases shares in wake of Royal Mail sell-off
Andrew Grice has been Political Editor of The Independent since 1998. He was previously Political Editor of The Sunday Times, where he worked for 10 years, and he has been a Westminster-based journalist since 1982. His column, Inside Politics, appears in The Independent each Saturday.
Thursday 01 May 2014
Vince Cable has asked his officials to investigate whether future share offers by the Government could be handled differently following the controversy over the Royal Mail sell-off.
The Business Secretary wants to learn lessons from the affair, which provoked criticism that the taxpayer lost around £1 billion. Royal Mail shares soared in value after the sale and “priority” City investors chosen to bring long-term stability to the company sold almost half their stake at a profit of more than £300 million.
Mr Cable has refused to apologise, despite criticism from MPs and the National Audit Office spending watchdog. He still believes the Government took the right decisions because the sell-off was successful, and that a flop would have opened ministers up to even more serious criticism.
The Liberal Democrat minister wants to see whether initial public offerings (IPOs) of shares could be conducted in a better and more transparent way to give people more confidence in the system.
Mr Cable is attracted by the idea of auctioning shares rather than using “book-building” to test demand and talk up the price among interested buyers before setting the offer price, as was done in the Royal Mail sell-off. He had experience of “blind auctions” for oil licences in his previous job as chief economist at Shell.
The review by officials at the Department of Business, Innovation and Skills will also look at whether greater use of the Internet could be made in future sell-offs to make the process more open. But it is unclear whether City firms would welcome such transparency.
Civil servants will hold talks with the NAO, UKTI, which manages the Government’s holding in RBS and Lloyds, and industry and academic experts before reporting to Mr Cable.
The Business Secretary admits that there could be downsides to a shares auction. While the process might raise more money for taxpayers, successful bidders might have less to invest in the company - as critics argued after the sale off 3G mobile spectrum netted £22.5 billion for the previous Labour Government. Mr Cable said: “You can get very extreme bids and get a lot of money from blind auctions, but they have their problems. There is the so-called winner’s curse, where people bid too much and then cannot invest subsequently, but certainly we should look at that.”
Auctions could see most of the shares snapped up by hedge funds and it might be harder to ensure a successful retail offer to the general public at stage two of the process.
Allies of Mr Cable admit the IPO system means making an educated guess about the right share price. They point out that the share price went down after more than half the IPOs since 2010, and that all were oversubscribed. Recent IPOs have seen wide variations in first-day trading, between a fall of five per cent and an increase of 38 per cent in Royal Mail’s case.
Despite the criticism of the IPO method, Mr Cable believes it was the best way to proceed on Royal Mail. The alternative of a trade sale to one buyer was not an option as there was no interest. In future cases, a trade sale could see ownership end up in the hands of a group of hedge funds.
The NAO has urged the Government to look at whether there are ways to achieve better value for taxpayers in future sell-offs, such as its 25 per cent stake in Lloyds and 81 per cent stake in RBS.
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