Thousands will lose out in Royal Mail share sale frenzy: Small investors hit as City big boys cash in
Hedge funds and banks have right to vast majority of shares
They are predicted to make a killing as company may have been undervalued
Meanwhile small investors are fighting over the scraps
Thousands of small investors risk losing out in the Royal Mail sell-off because shares are likely to be heavily rationed.
The Government is selling just over half the firm, prompting a shares gold rush. City banks and hedge funds have the right to buy 70 per cent of them, and are predicted to make a killing because the company may have been severely undervalued.
Small investors have been left scrabbling around for the remaining 30 per cent. The deadline for applications is tomorrow at midnight and the sale is predicted to be hugely oversubscribed, prompting fears there will simply not be enough shares to go around.
They are being sold for no more than £3.30 each, but yesterday analysts claimed that they are likely to soar in value as soon as the firm floats on the stock market – possibly to £4.50.
If that happened, investors would see an immediate paper profit of 36 per cent. The sales frenzy will continue until applications to buy shares close, at midnight tomorrow.
The Royal Mail will be floated on the stock market on Friday. City watchers and the Labour party claim the Government has hugely underestimated interest in the shares – undervaluing the organisation by as much as £1billion.
The official guidance on the share price suggests they will be sold to the public and City institutions at no more than £3.30 each, valuing the company at £3.3billion.
But analysts believe the figure could reach £4.50 on the first day of trading on Friday, so valuing the company at £4.5billion.
If that is correct, the Government, which is selling off around 52 per cent and giving another 10 per cent to staff, could have lost out to the tune of around £500million.
That would embarrass Chancellor George Osborne, who will be accused of selling off the nation’s ‘family silver’ at a knockdown price.
Yesterday Gert Zonneveld, managing director of stockbroker Panmure Gordon, said he was convinced the Government’s official valuation of Royal Mail shares was too low, and added: ‘I think this is going to be massively oversubscribed.
‘Institutional investors who want £10million will increase their order to £50million because they know their orders will be scaled back.’
Would-be small investors can buy shares directly via a Government website, or through one of more than 30 intermediary stockbrokers, including Hargreaves Lansdown.
When asked whether shares might be rationed, its head of equities, Richard Hunter, said: ‘It’s certainly possible. We haven’t had a Government privatisation like this for some time.
‘If you go back to the 1980s, and some of the bigger privatisations around then, in the event of any over subscription or last minute applications, there tended to be an allocation policy where everybody would get some shares but not as many as they asked for.’
The Government’s valuation was based on advice from investment banks Goldman Sachs and UBS.
The sale has been overshadowed by opposition from the workforce and the Communications Workers Union which has threatened strike action before Christmas.
And a recent survey showed more than 60 per cent of people were uneasy about the privatisation.
Labour’s business spokesman, Chuka Umunna, said the Government should pull the plug on the sale. He told Sky News: ‘Increasingly what this is looking like, is a massive bonanza for City speculators and a huge short-changing for taxpayers at the same time.
‘If you actually look at the property assets and you look at the value, this doesn’t add up.’
But a spokesman for the Department for Business said: ‘The Government is approaching the sale as a commercial shareholder and is seeking fair value for the shares and the best deal for taxpayers.’
