LONDON Oct 18 Britain's Business Secretary
Vince Cable rebuffed accusations that the government underpriced
the privatisation of Royal Mail and said on Friday the threat of
industrial action had influenced the price-setting process.
Shares in the Royal Mail postal service have risen
more than 50 percent to 500 pence since the government disposed
of a 62 percent stake in the firm last week at 330 pence per
Defending the pricing, Cable said that some institutions in
a group of around 20 potential investors used to gauge demand
had pulled their support in the weeks running up to the sale.
Their withdrawal came after Royal Mail told the government
it expected strike action over a pay dispute, Cable said.
"This change to the industrial relations position meant that
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," Cable
said in a letter to a panel of lawmakers scrutinising the sale.
Ballot results on Wednesday showed that workers would strike
on Nov. 4 unless a new pay deal was reached.
Despite those concerns, the eventual order book on the
privatisation showed institutional investors had bid for 20
times more shares than were on offer.
The opposition Labour party said the high demand signalled
taxpayers had been short-changed in the privatisation. Both
Cable and the government's independent advisers Lazard
have been summoned to appear before a parliamentary committee to
discuss the sale next month.
Cable said the upper end of the price range was raised from
3.1 billion pounds to 3.3 billion pounds during early valuation
discussions because of "positive feedback" for the sale.
During the order-taking process, the unusual, but not
unprecedented, step of raising the top of the range was
discussed but ultimately rejected by the advising banks, Goldman
Sachs and UBS, due to fears of alienating the
government's target group of long-term investors.
"This was not pursued based on an assessment of the
composition of demand in the order book and an assessment of
where demand would taper off, especially from informed potential
long-term investors," Cable said.
The government also considered selling a smaller stake to
allow it to cash in on higher prices at a later date but opted
against the plan because it would squeeze the number of shares
available to institutions and could fuel volatility.