Fears that Royal Mail sale failed to deliver

So the deed is done. The UK Government has floated just over 50 per cent of the Royal Mail, the 500-year old British postal service, with some 690,000 private investors being allocated 227 shares each – costing £750.

It meant a paper profit of £270 for lucky retail investors after trading opened on October 11. But did this initial public offering really need to take place? After all, Royal Mail is a public service and the few billions raised for HM Treasury hardly stacks up to much when benchmarked against the UK’s current account deficit.

Former Tory Prime Minister Margaret Thatcher years ago stood firmly against selling the ‘Queen’s head’.

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The Government and its advisers valued Royal Mail as a business at around £3bn. However, the organisation’s entire real estate portfolio comprising around 1,000 freehold and 1,000 leasehold properties could make that figure look small beer. Together these properties total 3 million square metres, although the acreage of the freehold land remains undisclosed.

Newspapers said at least two investment banks pitched a maximum price of about 500p, quoting banking sources.

According to the 450-page flotation prospectus just three sites in London – Nine Elms, Mount Pleasant and Paddington (23 acres) – had their raw land value put at £320m by agents. Yet the end value is estimated at £1.5bn once 310,000 sq ft of commercial space and 2,678 homes are developed.

Information contained in the prospectus also reveals that a healthy £104m profit was made last year selling a 2.3 acre site north of Oxford Street. So, the property valuation picture is a bit fuzzy.

One wonders where future profits will be deployed. Will they go to bolstering the service or rewarding management and shareholders, and in what proportion?

Royal Mail workers, with their £2,000 share ‘windfalls’, will have to wait a further three years before being able to cash in on their allocations.

Views on this IPO were divided. Billy Hayes, head of the Communications Workers’ Union, branded the float a “tragedy” and Labour’s Chuka Umunna estimated that Royal Mail’s IPO price of 330p-a-share had lost the taxpayer around £500m. Others like Joe Rundle, head of trading at ETX Capital, referred to it as a “dazzling stock market debut” in the Evening Standard.

This all brings back memories of when I worked on the UK electricity and water privatisations at NatWest Stockbrokers in the City. My job was hardly high powered; I had to sort, count, verify and stamp thousands of paper share certificates being sold by retail investors. Fortunately the mountains of paper we handled then is largely a thing of the past due to shareholdings today held electronically in broker nominee accounts. But even then I wondered where all those bundles of certificates would end up.

Clearly they were bought and sold on as larger blocks to other investors – mostly to the institutions – who traded them on and on. With the shares consolidated into ever larger holdings, it was only a matter of time before utilities likes of London Electricity fell into French hands.

Seriously, I doubt France would allow one of their utilities to suffer the same fate. And even in the US political tensions rose when China’s National Offshore Oil Company attempted to acquire US energy firm Unocal for US$18bn in 2005.

I say all this as few years ago the UK’s Department of Transport was examining whether to allow Dover Harbour to have its trust status changed – potentially opening it to external investors. There was much lobbying against the plan including by Dick Rodgers and his ‘Save Dover Harbour’ campaign, which gathered petitions in Parliamentary constituencies of various Tory MPs. Rodgers argued that Dover Harbour should be held as an “asset for the nation in perpetuity”.

As it transpired last December Transport Minister Simon Burns decided against a privatisation plan proposed by Dover Harbour Board, although DHB wanted a developer to build a ‘RoRo’ facility in the Western Docks. The mere whiff of the port’s privatisation would certainly have been on the radar of institutional investors.

Had the go-ahead been given, imagine hearing that a Russian family office or a Chinese sovereign wealth fund was to acquire part of Dover docks, which has operated as a trust for over 400 years. What next? The Russian navy using the port as a base? Food for thought.

Roger Aitken is a financial writer. He previously worked for the Financial Times and the London Stock Exchange.