18 December 2014
Last updated at 05:29
The government made £180m less from the £2bn sale of Royal Mail than it could have, a report commissioned by Business Secretary Vince Cable has said.
It says shares could have been valued up to 30p more than the flotation price of 330p because of the high level of demand from banks and individuals.
It said future government share sales should be more transparent and the pricing could be set at a later stage.
MPs have suggested taxpayers lost out by £1bn in the 2013 privatisation.
But the report by former City minister Lord Myners calculates the untapped potential revenue to be lower than that.
BBC business editor Kamal Ahmed said Lord Myners was careful not to criticise the government or the banks involved in the sale, saying there were good reasons for being cautious when the stake was sold.
At the time of the sale there was still the threat of a strike and fears that there could be a global economic downturn sparked by a US spending crisis, our business editor added.
Lord Myners’ findings form part of his review into the way the disposal of shares owned by government are conducted.
The probe was ordered by Mr Cable after a National Audit Office review into the privatisation of Royal Mail said too much emphasis was put on rushing the sale – the initial public offering (IPO) – at the expense of value for money.
Shares in 60% of Royal Mail were sold in the flotation. A further 10% of stock was given to the company’s employees, while the government retained a 30% stake.
Royal Mail shares leapt on their first day of trading in October 2013 by 38%, rising later to a peak of 615p. They now stand at 394p.
Lord Myners’ report says that a higher price could have been achieved but that “the consensus appears to be that this was the order of 20p-30p per share… equating to proceeds to government at IPO of £120-180m”.
It adds: “For the avoidance of doubt, we do not believe that a price anywhere near the levels seen in the aftermarket could have been achieved at listing.”
In his report, Lord Myners said the privatisation, which raised a total of £2bn, was handled “with considerable professionalism” and that the complicated sales process was partly to blame for the sale at a lower than optimum price.
He added: “The sale was done against a backdrop of global economic uncertainty and a threat of industrial action, which go a long way towards explaining the cautious approach taken throughout the process.
“We found no evidence to challenge the general assertion that an IPO price greater than 350-360p could have been achieved and we accept that a decision to revise the range would have come with added uncertainty and risk. The right decisions were made.”
In July, a report from the Business, Innovation and Skills select committee suggested Royal Mail shares had been undervalued and its property mispriced, meaning the sale could have raised an extra £1bn.
The Department for Business, however, said the report contained “factual errors and misunderstandings”, with Mr Cable commenting that the MPs had the “benefit of hindsight”.
“We sold at a price that was regarded as the best that could be achieved in the context in which we sold it,” Mr Cable said.
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