UK government still under pressure over Royal Mail sale

The UK government has failed to shake off criticism of its handling of Royal Mail’s privatisation this week, after business secretary Vince Cable faced yet another grilling in Parliament. The Conservative and Liberal Democrat coalition has faced public anger since Royal Mail’s flotation on the London Stock Exchange last October, over the initial 330p valuation given to shares.

Failing to act on suspicions that the shares were undervalued, out of fear that raising the share price valuation would dissuade investors from buying, the government lost out on £750m as share prices rocked as soon as trading opened.

After repeated visits to the House of Commons’ Business, Innovation and Skills Committee, Cable was back before the MPs this week to explain himself following the release of a report from the National Audit Office.

His responses to often angry questions from MPs followed the line taken in previous appearances, that the government followed expert advice in setting the 330p valuation, before shares shot up to 450p and more shortly after trading opened.

Investors

Wednesday saw the government forced to disclose the list of 16 priority investors offered a block of shares reserved for long-term institutional investors who would provide a privatised Royal Mail with stability.

Cable said: “I had been advised that the investors expected confidentiality around their share acquisitions but there has been strong interest in who the investors are and speculation around the names, some of it inaccurate. I have decided the public has an interest in an accurate list being available.”

The names released included Abu Dhabi Investment Authority, BlackRock, Capital Research, Fidelity Worldwide, GIC, Henderson, JP Morgan, Kuwait Investment Office, Lansdowne Partners, Lazard Asset Management, Och Ziff, Schroders, Soros, Standard Life, Third Point and Threadneedle.

These priority investors informed the government’s valuation and according to Cable, gave the government the confidence to go ahead with the IPO.

But only 6 of the investors remained among the company’s largest shareholders by January 2014, having cashed in their allocations early despite having a “gentleman’s agreement” to hold on to their shares.

With the NAO report suggesting the government’s method for determining demand levels for shares was “not fully effective”, this week press criticism in the UK has focussed on the fact that the investment arm of the government’s “independent” advisors in the share sale, Lazard Asset Management, was revealed to be among the 16 priority investors buying large amounts of shares.

Claims have suggested Lazard made a quick £8m on the jump in share prices.

“Mishandling”

Opposition MPs said the list of investor names added to suggestions that the UK government “mishandled” the Royal Mail share sale.

Chuka Umunna, the Labour Party’s shadow business secretary, said: “Vince Cable’s claims to have prioritised long-term investors now lie in tatters, and the City has made a fast buck at taxpayers’ expense. This list includes both Lazard Asset Management, and a hedge fund with links to the Conservative Party.

“The full scale of the mishandling of the sale of Royal Mail by David Cameron’s government is now becoming clear and serious questions for ministers are mounting. Taxpayers have been left hugely short changed at a time when families are being hit by a cost-of-living crisis.”

The Communication Workers Union, which represents 115,000 Royal Mail workers who almost all became shareholders in Royal Mail, said it was time for Vince Cable to step down as business secretary.

Billy Hayes, the CWU general secretary, said it was “beyond belief” that the government continued to see “nothing wrong” in what happened with the IPO.

He said: “It’s clear Cable needs to go – this is a man who lost the taxpayer a billion pounds. A postal worker who lost a valuable item would be sacked and the same standard needs to apply to Mr Cable – he can’t carry on as Secretary of State.”