Belfast Telegraph

Thursday 21 August 2014

Royal Mail shares: MPs summon corporate advisers to explain valuations

Royal Mail shares rose by more than £1bn in value during the first day of trading
Royal Mail shares rose by more than £1bn in value during the first day of trading

A group of the City’s best-known corporate advisers has been summoned to appear before a committee of MPs to discuss the price at which Royal Mail was floated on the London Stock Exchange last month.

Citigroup, Deutsche Bank, JP Morgan and Panmure Gordon are set to be grilled by the Business, Innovation and Skills Committee later this month, having questioned the controversial £3.3bn valuation that was handed to the 500-year-old company.

Vince Cable, the Business Secretary, and Lazard, which advised the Government on the sale, are already due to be questioned by the committee on November 20.

Royal Mail shares rose by more than £1bn in value during the first day of trading, netting big profits for investors but prompting accusations that the Government sold it too cheaply at 330p a share.

Reports at the time revealed that JP Morgan had suggested a valuation of almost £10bn for Royal Mail when it was vying to win a mandate to act on the share sell-off earlier this year.Citigroup and Deutsche Bank are believed to have pitched valuations well above the £3.3bn level at which the shares were sold. Stockbroker Panmure Gordon was vocal in its criticism of the sale price.

Although the committee has no statutory powers, the hearings are likely to reignite the political debate surrounding the sale.

The flotation was described by the Labour leader Ed Miliband as a “fire sale of a great institution at a knockdown price”, although Mr Cable claimed that the threat of strike action from postal workers depressed the price.

“There were some potential investors who stated that they were not willing to invest at all and many others who focused on the business and financial implications of strike action,” he said in a letter to Adrian Bailey, chairman of the committee.

Other Government ministers have defended the valuation given to Royal Mail by claiming its pricing should be judged over the next six months to allow the initial market volatility to settle down.

Royal Mail’s listing price is by no means the only controversy surrounding the sell-off. Shortly after the float, it emerged that a hedge fund run by a businessman once described as a “locust” was the largest private shareholder in Royal Mail despite Mr Cable having been critical of hedge funds in the past.

The Children’s Investment Fund (TCI), which is led by Chris Hohn, was handed a 5.8 per cent stake in the privatised group worth about £280m.

Mr Hohn, the son of a car mechanic who emigrated to Britain from Jamaica, is one of Britain’s most generous philanthropists with a proportion of the hedge fund’s profits given directly to charity. However, the hedge fund is  one of the world’s most aggressive.

Royal Mail shares closed yesterday at 569p, a 72 per cent increase on the listing price.

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