Royal Mail 'could go bust' fear
Royal Mail said yesterday it could “not rule out” administration as a “hypothetical worst case” scenario if there wasn’t a satisfactory way agreed to finance the company.
The comment came in response to reports that Royal Mail – which is losing pounds 1.1m a day – could be “forced into administration” unless it was allowed to raise stamp prices.
A Royal Mail spokesman however stressed that, while he could not rule it out, it was a hypothetical situation.
The company is currently awaiting a decision from the post regulator, Postcomm, on future price rises.
The mail group wants to put a penny on the price of a stamp, taking first-class to 28p and second class to 20p. Postcomm has agreed to this but wants a price cap on subsequent rises to 2.5pc below retail inflation over three years.
Royal Mail says this would cancel any economic benefits from the price increase.
Chairman Allan Leighton has previously warned that pricing proposals from Postcomm would turn a pounds 510m revenue boost from the 1p stamp rise into a pounds 460m financial “black hole”.
He said that if the regulator would not put forward a straightforward regime it would seek a referral to the Competition Commission of the “complex price constraints” being proposed by Postcomm.
Postcomm is expected to announce a final decision in the coming weeks.
However there are concerns that if Postcomm rejects requests for an increase, Royal Mail may not be able to finance government loans totalling pounds 1bn.
A spokesman for Royal Mail said: “If Postcomm try and impose on us the pricing straightjacket they have put forward there is no way we can finance the loans.
“But we need to hear from Postcomm and take a view of what they decide and if they don’t make significant changes, we will have to trigger a referral to the Competition Commission.”
He added: “Administration could not be ruled out if there isn’t a way of financing the company.
“But what we want to see is a satisfactory outcome to Postcomm’s price controls so that we can proceed with the pounds 3bn restructuring plan for Royal Mail.
“We don’t want to get to that situation where administration is an option – we have got a plan to run the Mail’s business commercially.”
“But it is a hypothetical worst case option.”
Sunday newspapers said the DTI had warned that if Postcomm rejects requests for an increase in prices, then Royal Mail would not be able to pay back three government loans worth more than pounds 1bn.
The DTI, shareholder and provider of finance to Royal Mail, said in December that it was essential that as a shareholder it made finance available only on a commercial basis.
The DTI was not available for comment yesterday over whether administration was a possibility for Royal Mail.
