UPDATE 1-"Priority investors" drawn into UK uproar over Royal Mail privatisation
* Quick profits made when share price soared in sell-off
* British government rapped for short-changing taxpayers
* Investors include BlackRock, JP Morgan, Standard Life (Writes through, adds comments, background)
LONDON, April 30 (Reuters) - Major global investors including BlackRock, JP Morgan, and Standard Life were drawn into a British political battle on Wednesday over their profits from a Royal Mail sell-off criticised for short-changing taxpayers.
Shares in Royal Mail have soared as much as 87 percent above the 330 pence per share Britain sold a 60 percent stake for in October. This has offered quick profits for big banks and City investors and drawn flak from trade unions and the opposition Labour Party, who say the government botched the deal.
A National Audit Office report this month said taxpayers had lost out on at least 750 million pounds and the backlash has been fuelled further by details that many of the government's targeted long term investors had instead turned a swift profit.
Blackrock, JP Morgan and Standard Life were named in a list of 16 firms published by Britain as "priority investors", who were sold larger allocations of shares due to a willingness to buy sizeable stakes for the long-term, despite Royal Mail facing the threat of strike action in its peak Christmas period.
The government said some 20 percent of the group were hedge funds and that it released the list in the public interest.
According to the NAO, almost half of the priority investors sold their stakes within weeks as the share price rocketed, while others such as the asset management arm of Lazard, Britain's independent adviser on the sale of Royal Mail, sold out completely, raising 8 million pounds for its clients.
Prime Minister David Cameron came under fire in parliament on Wednesday for the preferential treatment.
"Can the prime minister tell us what assurances, in return for their golden ticket, those investors gave us that they would hold the shares for the long term?" Labour leader Ed Miliband said. Those parties, he added, had made a killing while the undervalued sale meant taxpayers lost out.
Cameron insisted the sale had been a success.
Facing a parliamentary committee for another grilling on Wednesday, Lazard, lead bankers from Goldman Sachs and UBS and government officials said moves to avoid such a scenario with priority investors could have floored the sale.
"What we had was a set of investors who at the beginning of this process understood Royal Mail and its issues, and who were prepared to give us.. confidence that we could have a successful IPO," Martin Donnelly, Permanent Secretary for the Department for Business, Innovation and Skills.
"We were trying to build a stable investor base. We did not seek formal commitments from investors to stay investors because that would have come at a price, and we did not want put that price on the taxpayer."
Many had a duty to their investors to sell at a profit if they felt the price had risen too high," the Public Account Committee heard.
Ministers had hoped to win political capital by completing a privatisation that three previous administrations had tried and aborted, but the wrangle over pricing has instead left them facing accusations of incompetence.
They have insisted its cautious stance on price was required to avoid a flopped float, and on Tuesday said they had no apologies to make over the 2 billion pound sale, which saw Britain end 500 years of state control of Royal Mail.
On Monday, Britain's financial regulator said there were no grounds for an investigation into the sale, rejecting calls from lawmakers for a closer look at the reasons behind the sharp share price rise.
Royal Mail has argued that privatisation opens it up to the capital it needs to invest in modernising its business.
Its shares closed up at 529.5 pence on Wednesday, 60 percent above the October offer price.
The priority firms were:
Abu Dhabi Investment Authority
GIC (Singapore sovereign wealth fund)
Kuwait Investment Office
Lazard Asset Management
Soros Fund Management
Threadneedle (Editing by Mark Heinrich)