Direct Line shares rise on debut

The initial public offering was priced at 175p per share, close to the middle of the range originally set and valuing the business at £2.6bn. The shares were trading at 181p in early deals.

RBS said it would sell 450 million Direct Line shares, representing 30 per cent of the business, with a 15 per cent over-allotment option. It will raise £787m from the sale, prior to the exercise of that option.

There had been concerns that investor appetite for the initial public offering would be damaged by British anti-trust regulators investigating the car insurance market, due to suggestions that consumers were being overcharged.

However, analyst Eamonn Flanagan at brokerage Shore Capital said the price for Direct Line stock was a “reasonable outcome”.

The sale benefited from strong demand from British retail investors, who have had few opportunities to participate in large-scale IPOs in recent years.

Direct Line chief executive Paul Geddis said retail investors had purchased between £5,000 and £6,000 worth of shares on average and had taken up 15 per cent of the shares sold.

RBS is selling Direct Line in return for winning approval from European Union regulators for a bailout during the 2008 financial crisis that left it 82 per cent state-owned.

The price was near the mid-point of the 160p to 195p range set by the British bank when it launched the IPO on September 28.

RBS has been under pressure to secure a good price for the business, with taxpayers sitting on a loss of £21.5bn after the Government pumped in £45bn to rescue the bank.

“This is another important milestone in RBS Group’s restructuring plan,” said RBS finance director Bruce Van Saun.

RBS said it would hold a 65.3 per cent stake in Direct Line, assuming the overallotment option was taken up.

Under the EU directive, RBS must sell more than 50 per cent of Direct Line by the end of 2013 and the rest of its holding a year later.