© The Financial Times Ltd 2015 FT and 'Financial Times' are trademarks of The Financial Times Ltd.
Last updated: May 2, 2014 10:43 pm
Vince Cable admitted on Tuesday that he was not happy that some priority investors had sold their shares in Royal Mail for a quick profit last autumn and said he hoped to introduce changes to force investors to take a longer-term view.
The National Audit Office said in a report this month that of 16 “priority investors” – institutions given a larger allocation than others in the hope they would be stable, long-term investors – 12 had sold some or all of their holdings quickly to take advantage of the high trading price.
During a testy two-hour grilling by the Commons business committee, Mr Cable said he was “not comfortable” with the fact that some had sold quickly, saying there was too much short-termism in the financial system.
“I have approached the Law Commission with a view to changing the fiduciary duty to commit . . . institutions to longer-term investment. I am hopeful we shall have that soon.”
He said the present rules meant a company had an obligation to the pensioners whose money it was investing to sell in circumstances such as these, where some thought the high post-sale price “unrealistic” and likely to fall.
The business secretary agreed to let the committee’s Labour chairman, Adrian Bailey, have the names of the priority investors on a confidential basis, but could not name them publicly because it would breach legal undertakings.
Mr Cable said the flotation, the UK’s biggest state sell-off since privatisation of the railways in the 1990s, was successful “and we do not apologise for it and we do not regret it”.
He said the government would consider alternative methods for future state sell-offs, such as blind auctions, but might conclude that an initial public offering remained the best way.
Also appearing before the committee, Michael Fallon, business minister, insisted that the Royal Mail privatisation had been a success in the face of accusations that it had been sold too cheaply at a cost of more than £1bn to taxpayers.
Mr Fallon told the committee that he stood by the initial share price at the time of last year’s flotation even though the value of shares soared by 38 per cent on their first day on offer.
Mr Bailey, who has said previously that Mr Cable should consider his position, said there was “robust evidence’’ that the shares were undervalued.
Mr Fallon replied: “I don’t accept that. I have not seen any evidence that the shares were undervalued at the time of the flotation. I stick by the share price.’’
The chairman accused him of giving an “Alice in Wonderland” account. Mr Bailey said: “The fact is you didn’t get the best price because on the day of the sale the share price soared.”
The government sold 60 per cent of the company last October at 330p a share, raising nearly £2bn. But on the first day of trading, Royal Mail’s shares closed at 455p, representing a first-day increase in value of £750m for the new shareholders.
Earlier this year, the shares reached 618p and they were trading at 524p on Tuesday, still 58 per cent above the offer price.
The two ministers said one of the issues affecting the setting of the share price last autumn was the threat of industrial action by the Communication Workers Union, as well as fears of a US government default that unsettled markets.
Mr Cable suggested Royal Mail was “still a fragile company with a volatile share price’’.
He told the committee that delaying the privatisation had been an option, which the ministers considered, but postponing the flotation would not have served the government’s objectives.
Letter in response to this article:
Please don't cut articles from FT.com and redistribute by email or post to the web.
Sign up for email briefings to stay up to date on topics you are interested in