10th Oct 2013 17:39
LONDON (Alliance News) - Royal Mail will be worth an initial GBP3.3 billion when conditional trading in its shares start Friday after the initial public offering was priced at 330 pence a share, right at the top end of the range set by the UK government after huge demand for the shares.
The Department for Business, Innovation & Skills said the institutional tranche of the offer was more than 20 times oversubscribed, while the retail tranche was about seven times oversubscribed.
That means retail investors will have their allocation capped, with those applying for shares worth more than GBP10,000 through the retail tranche, about 5% of the total, receiving no shares at all. Those applying through the retail offer up to the GBP10,000 cap will each get 227 shares worth GBP749.10.
In total, 67% of the base offer was allocated to institutional investors and 33% to retail investors.
The government had met Thursday to decide how small investors would be treated due to the huge demand for the shares from so-called retail investors. In total, 93,000 members of the public will have their allocation met in full because they bid for GBP750 worth of shares or less. About 270,000 applicants, or 37%, will receive at least half the shares they applied for.
Royal Mail employees, who could apply for free shares through a separate offer for a 10% stake in the privatised business, will have their applications met in full up to a cap of GBP10,000.
"Our priority has always been protection of the consumer through the universal service obligation, good value for money for the taxpayer, and a stable long term ownership structure that will enable Royal Mail to be a successful enterprise and to raise commercial funding to invest," Business Secretary Vince Cable said in a statement. "This listing achieves all of these objectives. We have struck the right balance, increasing the proportion of shares going to small investors to ensure they get their fair share and ensuring the employees get a 10% stake in the business."
The UK government's stake in Royal Mail will drop to 37.8% after the listing and down to 30% if the over-allotment is taken in full, as seems likely. It will raise gross proceeds of about GBP1.72 billion from the base offer, and GBP1.98 billion if the over-allotment is exercised in full.
UBS has been granted the over-allotment of 78.3 million shares, or about 15% of the base offer, and has 30 days in which to trade them. Given the strong demand, that should happen quickly.
"It is gratifying that Royal Mail enjoys the confidence of such a strong group of investors. With these institutions, many of whom are responsible for people's pensions and savings, and with UK citizens and our own people backing Royal Mail, we are much better positioned to be the universal service provider for the country," Royal Mail Chief Executive Moya Greene said.
Conditional dealings, which are only open to the institutional investors, will start on the London Stock Exchange at 0800 BST Friday. Unconditional trading will begin Tuesday.
Royal Mail shares are expected to surge when dealings start Friday, with people familiar with the matter telling Alliance News that they were indicated at over 400 pence a share in the so-called grey market.
Even if they don't, the GBP3.3 billion market capitalization would likely be enough to push Royal Mail into the FTSE 100 when the next index review takes place in December.
The IPO is by far the biggest in the UK in the last three years, dwarfing the next biggest, the GBP787.5 million float of Direct Line, according to data from S&P Capital IQ
By Steve McGrath; [email protected]; @stevemcgrath1
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