Royal Mail sale: Small investors will be favoured

Small investors will be favoured in the privatisation of the Royal Mail, at the expense of those seeking a large allocation, the BBC has learned.

Anyone who subscribed for the minimum entitlement of £750 will receive 100% of their application, according to BBC business editor Robert Peston.

But those who have applied for £10,000 worth of shares or more, will not receive any, he said.

Demand for Royal Mail shares far outstripped the supply.

Robert Peston said: "A government source said to me that ministers wanted to reward the Mrs Migginses, but not the big professional investors."

Royal Mail's shares will be priced at 330p, which is at the top end of what the government was hoping for and values the entire Royal Mail at £3.3bn.

Shares were initially priced between 260p and 330p, but strong demand led the government to revise the figures upwards on Friday last week.

Strong demand

There were more than 700,000 individual applications for shares, which far outstripped the value of shares available.

Retail investors could apply for up to £10,000 worth of Royal Mail shares online, but could bid for a much bigger allocation if they applied through a stock broker.

But the government has decided to favour more modest investors and any applications seeking more than £10,000 worth of shares will receive none.

The applications indicate that individual investors had about £4bn to spend on Royal Mail shares, which is much more than the £517m worth of shares on offer.

Applications for shares from professional investors also far outstripped the amount allocated to them.

Our business editor says that combined, individual and professional investors may have had £15bn available to invest.

He also said that individual investors could be allotted as much as 33% of the total shares on offer, up from the original amount of 30%, while professional investors could expect their share to be reduced slightly to 67%.

The government will sell 52.2% of the company, the maximum it was prepared to sell at this stage, he adds.

That puts the value for the Treasury of the privatisation at £1.7bn.

Full trading in Royal Mail shares begins next Tuesday on the London Stock Exchange.

However, investors have been able to speculate on the value of Royal Mail ahead of the official start of trading on what is known as the grey market.

Financial bookmaker IG Index says that, as of Thursday morning, orders placed by its clients indicate Royal Mail shares could be worth between 405p and 425p each.

However, that is just an indication and the market may react differently next week.

Strike threat

Under the terms of the share sale, a 10% stake in the business has been reserved for Royal Mail employees.

Members of the Communication Workers Union (CWU) are voting on whether to strike over the government's privatisation plan.

The ballot closes on 16 October and strike action could begin as early as 23 October.

Royal Mail says the fundraising will provide it with the money needed to modernise and compete in a competitive parcels market.

Shadow business secretary Chuka Umunna criticised the government on Monday for "short-changing" taxpayers.

In particular, Labour says the privatisation may be undervaluing Royal Mail's property, some of which is in prime locations.

However, on Wednesday, Business Secretary Vince Cable told a parliamentary committee: "We're confident that it's priced in the right place".