Strong Royal Mail market debut fuels debate over price

Fri Oct 11, 2013 2:07pm EDT
 
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By Kylie MacLellan and William James

LONDON (Reuters) - Shares in Britain's Royal Mail (RMG.L: Quote) rocketed to a near 40 percent premium above their issue price in Friday's stock market debut, fuelling a debate about whether they had been priced too low in order to guarantee a successful privatization.

The share price increase, which lifted the value of the near 500-year-old company to as much as 4.56 billion pounds ($7.3 billion) in one of Britain's biggest state sell-offs for decades, came after criticism from the opposition Labour party that the government was short-changing taxpayers.

The stock hit an early high of 456 pence after the hugely oversubscribed sale of a majority stake, priced at 330p and generating 1.7 billion pounds for the government before fees and a possible "overallotment" option of extra shares which can be sold depending on demand.

By 1253 GMT the shares were trading at 440p.

Business Secretary Vince Cable denied the government had undervalued Royal Mail, whose red post boxes decorated with the Royal Crest are a feature of landscapes from Land's End in southwest England to John o'Groats in the far north of Scotland.

"You get an enormous amount of froth and speculation in the aftermath of a big initial public offering (IPO) of this kind," Cable told the BBC. "What matters is where the price eventually settles and ... that's what we're really interested in."

After receiving around 27 billion pounds worth of orders for the 1.7 billion worth of shares on offer, the government allocated 33 percent of the offering to members of the public, with the rest going to institutions such as pension funds.

Financial bookmaker IG said 102 million shares had changed hands in the first hour, almost a fifth of the total on offer. "Clearly there has been an awful lot of euphoria and maybe an element of hype ... so maybe people have got a bit carried away," said David Jones, IG's chief market strategist.   Continued...

 
An electronic information board is seen at the London Stock Exchange in the City of London October 11, 2013. REUTERS/Stefan Wermuth