The privitisation of The Royal Mail

The privitisation of The Royal Mail saw small investors being favoured over large. Savers who applied for up to £10,000 worth of shares in Royal Mail have ended up with fewer shares than they wanted.

Around 690,000 people, each member of the public, will receive £750. In a surprise move, those who asked for more than £10,000 – around 5% of the total – will receive nothing!  The allocation for individual investors was oversubscribed seven times over! This was deemed to be the reason for those receiving nothing.

It was feared a large percentage of shares will end up with short-term investors such as overseas institutions and hedge funds, which would result in some small investors not getting any shares. However, 95% of applications will receive shares. Anyone who applied for the minimum amount of £750 will receive the full amount.

Today, Royal Mail shares rose 38% to 455p in their first day of conditional dealings on the London Stock Exchange.

Key questions and answers

How has the allocation been made?
Everyone who applied for less than £10,000-worth will get the same – 227 shares worth £749.10. It means 385,000 investors had their allocation scaled back. More controversially, the 34,500 investors who pitched in for more than £10,000-worth will get nothing. Those investors represent around 5pc of the 690,000 total who applied.

Why were those investors excluded?
The Government thought that leaving those wealthy enough to invest more than £10,000 would be least bothered about missing out on a small alllocation of shares. The decision, critics suggested last night, enables the Government to boast that it was a “people’s privatisation”. Royal Mail employees, it should be noted, will get not only free shares but are guaranteed to get any extra shares they applied for, up to £10,000.

What does the City receive?
Financial institutions, ranging from pension funds to hedge funds, took the lion’s share with 67 per cent of the shares, leaving the rest to small investors and Royal Mail workers.

Why didn’t they allocate more of this to individual investors?
The official line is that institutions are more likely to be long-term investors, creating more stability in the first few weeks. However, concerns have been raised that many of the instituionally allocated shares would end up in the hands of high-frequency traders.

Source; The Daily Telegraph