UK lawmakers criticise government and advisers over Royal Mail saleFriday 11 July 2014 08.29
Britain's biggest privatisation in years was blighted by a fear of failure and poor advice from state-appointed banks.
This is according to a committee of lawmakers after an inquiry into the £2 billion sale of Royal Mail.
Britain sold a 60% stake in the postal service at 330 pence per share last October after a politically charged debate which pitted the government against Royal Mail's workforce and the opposition Labour party.
The stock quickly rose by as much as 87%, prompting criticism that the price had been set too low and the government had botched the deal.
The price has since fallen back, but at 473 pence per share remains above where it was sold.
"We believe that fear of failure and poor quality advice led to a significant underestimate of the demand for Royal Mail shares," said Adrian Bailey, the Labour chairman of the cross-party parliamentary committee which scrutinised the deal.
Some of the concerns echo those expressed earlier this year by spending watchdog the National Audit Office, which said the 500-year-old state postal operator was sold off too cheaply.
UK ministers have staunchly defended the government's handling of the sell-off, which followed three failed attempts by previous administrations to privatise Royal Mail. They said they were cautious to reduce the risk of the launch being a flop in the face of possible strike action at the postal firm.
"The committee's views on the share price are based entirely on hindsight and ignore that we were selling 600 million shares - they found no evidence that the department or its advisers missed vital information prior to sale," a business department spokeswoman said in response to the report.
However the government has launched a review of the bookbuilding process used to collect orders for shares in such sell-offs. Over the next six years, it wants to raise £20 billion from the sale of public assets such as stakes in the Eurostar rail link, Royal Bank of Scotland and Lloyds Banking Group.
The committee report's criticism focused on the actions of the government, its independent adviser Lazard and the two banks it hired to lead the sale of shares, UBS and Goldman Sachs.
It said the bookbuilding process had been carried out by the advisers in a way that meant investors did not have to reveal the maximum price they would be prepared to pay for the shares. As a result, taxpayers had missed out, they said.
While it found no evidence of impropriety by the advisers, the report criticised the fact that a separate asset management unit of Lazard had been among those granted preferential status in the allocation of shares.
It also highlighted that UBS and Goldman Sachs would earn fees from trading Royal Mail shares on behalf of preferred investors, many of whom were their clients.
"It is clear to us that any perception of financial advantage must be removed from the privatisation process," the report said.
"Therefore we recommend that the department give serious consideration to excluding any company involved in the selection of preferred investors, as a preferred investor," it added.
The report also said that the government had put too much emphasis on the risk of strikes by Royal Mail staff, resulting in a share price that was too low. It criticised the decision not to raise the price once it became clear demand was high.