Investors dash for Royal Mail shares before privatisation

Royal Mail shares are expected to appreciate 20% due to demand on their first day of trading when the company’s shares are floated in what Vincent Boland calls a “good old-fashioned privatisation.” The strength of the demand is being felt in intermediaries dealing with the sale. IG Group Plc, an English financial derivatives group, had their mid-price increase by 9% since the 3^rd October.

The government range for the share price was expected to be around 300p to 330p per share on Friday, by Monday the shares had already hit the 392p to 412p within IG Group Plc.

The high demand of the shares will mean that investors will certainty not receive all shares applied for and instead be allocated according to government process.

The British government is looking to sell 40.1% to 52.2% of the total shares and a further 7.8% if demand is high. Those 150,000 who work for the Royal Mail will be allocated an additional 10% of all shares for free at an estimated value of £2,200 each.

After the price is officially announced and all shares orders allocated on 8^th October, shares will begin conditional trading on Friday 11^th when the Royal Mail begins its flotation after 370 years of being a public service.

The increasing popularity of the Initial Public Offering (IPO) has began a political debate as to whether Conservative/ Liberal Democrat Coalition is selling off shares too cheaply.

City estimates the undervaluation to be possibly worth around £1Bn due to property values of some of the Royal Mail sites, such as the London based Mount Pleasant, which have not been considered in the initial valuation of the company. Alex Johnson, the former Labour Business Secretary, has said: “There is a vast difference between pricing Royal Mail shares conservatively and undervaluing them by £1billion. This is ripping off the taxpayer on an epic scale.” Labour has also raised concerns that hedge funds and speculators will make massive short-term profits off the arbitrage of the shares before serious public investments are made on the 15^th.

This means that all profit to be made through finding the price equilibrium of the company shares, through the buying and selling of shares over those three conditional days, will go to companies and be missed by the English public. Potential investors have the choice of one of the 44 companies which are acting as intermediaries in the IPO or directly through the government at the website.

Patrick Corby