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LONDON (Reuters) - The planned flotation of Britain's postal service is drawing healthy demand from domestic and overseas investors, building momentum for an autumn sale, Business Minister Michael Fallon told Reuters on Monday.
Overseeing the country's biggest privatization in decades, Fallon said he hoped a pay deal with trade unions and Royal Mail would soon be sealed to help ease investor concerns.
Analysts say the sale will value the 497-year-old institution at up to 3 billion pounds ($4.58 billion), at a time when government coffers have been depleted by a tough austerity program.
But it is also reopening the wounds of battles fought with the unions during the 1980s and '90s when Britain sold off a large chunk of its public utilities.
The British government announced this month it wanted to sell a majority stake in Royal Mail by the end of March 2014 to allow Royal Mail to fund the modernization of its delivery networks using private cash.
Goldman Sachs (GS.N) and UBS UBSN.VX are advising on the float and Fallon said there was demand from both retail and institutional investors.
"The banks who have been advising us have confirmed that there is a healthy appetite," Fallon said in an interview, expressing confidence that the sale could begin "in the autumn", which starts in late September in Britain.
A listing of Belgian postal operator bpost (BPOST.BR) in June showed strong investor appetite to buy into postal services.
Royal Mail more than doubled its annual profit to 403 million pounds in 2012/13, thanks in large part to a boom in parcel delivery driven by Internet shopping.
The government wants to eventually sell its entire holding in the postal firm and while a timeframe for this had yet to be established, Fallon did not rule out the sale of a second stake before Britain's next parliamentary election in 2015.
But the Communication Workers' Union (CWU), which represents the majority of Royal Mail's 150,000-strong workforce, is strongly opposing a sale it sees as both unnecessary and a possible threat to services, pay and working conditions.
"Potential investors can see there are issues that have to be tackled as part of privatization," Fallon said, noting union opposition to postal privatizations in Europe and previous selloffs in Britain, the bulk of which were orchestrated by former prime minister Margaret Thatcher, who left office in 1990.
"They know that management and unions are negotiating on this pay round and looking for the kind of three-year deal that will give the business some more industrial relations stability."
The CWU rejected an 8.6 percent pay rise from Royal Mail in July, saying it was unhappy with changes to pensions schemes and warning that industrial action was inevitable.
Fallon said he would not be intervening in the dispute but thought the offer was "fairly generous", when coupled with the fact that the government will hand 10 percent of Royal Mail shares to staff for free during the privatization.
He also saw little likelihood that criticism of the privatization from the opposition Labor party would make investors doubtful over long term plans to sell all the government's stake in Royal Mail.
"The most significant thing about Labor's position is that they're not committing to what the union want, which is to renationalize. I think investors will take careful note of that," he said.
Editing by John Stonestreet