* Lawmakers criticise "fear of failure and poor quality
* Government launches review of bookbuilding in such
* It wants to raise 20 bln pounds from sale of other public
By William James
LONDON, July 11 Britain's biggest privatisation
in years was blighted by a fear of failure and poor advice from
state-appointed banks, a committee of lawmakers said on Friday
following an inquiry into the 2 billion pound ($3.4 billion)
sale of Royal Mail.
Britain sold a 60 percent stake in the postal service at 330
pence per share last October after a politically charged debate
which pitted the coalition government against Royal Mail's
heavily unionised workforce and the opposition Labour party.
The stock quickly rose by as much as 87 percent, prompting
criticism that the price had been set too low and the government
had botched the deal. The price has since fallen back, but at
473p per share remains above where it was sold.
"We believe that fear of failure and poor quality advice led
to a significant underestimate of the demand for Royal Mail
shares," said Adrian Bailey, the Labour chairman of the
cross-party parliamentary committee which scrutinised the deal.
Some of the concerns echo those expressed earlier this year
by spending watchdog the National Audit Office, which said the
500-year-old state postal operator was sold off too cheaply.
Ministers have staunchly defended the government's handling
of the sell-off, which followed three failed attempts by
previous administrations to privatise Royal Mail, saying they
were cautious to reduce the risk of the launch being a flop in
the face of possible strike action at the postal firm.
"The committee's views on the share price are based entirely
on hindsight and ignore that we were selling 600 million shares
- they found no evidence that the department or its advisers
missed vital information prior to sale," a business department
spokeswoman said in response to the lawmakers' report.
However on Thursday the government launched a review of the
bookbuilding process used to collect orders for shares in such
sell-offs. Over the next six years, ministers want to raise 20
billion pounds from the sale of public assets such as stakes in
the Eurostar rail link, Royal Bank of Scotland and
Labour said the committee's report backed up their argument
that the sale had been mishandled, and that the review of the
privatisation process was effectively an admission from the
government that it had sold the firm too cheaply.
It had previously seized upon the flotation, and the quick
profits made by big banks and City investors, to reinforce one
of its central arguments ahead of next year's general election -
that Conservative Prime Minister David Cameron's government is
out of touch with ordinary voters.
The committee report's criticism focused on the actions of
the government, its independent adviser Lazard, and the
two banks it hired to lead the sale of shares, UBS and
The committee said the bookbuilding process had been carried
out by the advisers in a way that meant investors did not have
to reveal the maximum price they would be prepared to pay for
the shares. As a result, taxpayers had missed out, they said.
While it found no evidence of impropriety by the advisers,
the report criticised the fact that a separate asset management
unit of Lazard had been among those granted preferential status
in the allocation of shares. It also highlighted that UBS and
Goldman Sachs would earn fees from trading Royal Mail shares on
behalf of preferred investors, many of whom were their clients.
"It is clear to us that any perception of financial
advantage must be removed from the privatisation process," the
"Therefore we recommend that the department give serious
consideration to excluding any company involved in the selection
of preferred investors, as a preferred investor."
Lazard, UBS and Goldman Sachs declined to comment.
The report also said that the government had put too much
emphasis on the risk of strikes by Royal Mail staff, resulting
in a share price that was too low. It criticised the decision
not to raise the price once it became clear demand was high.
($1 = 0.5877 British Pounds)
(Additional reporting by Freya Berry; Editing by Pravin Char)