We didn’t sell the Royal Mail off on the cheap, insist float bankers

UBS and Goldman Sachs, the banks that led Royal Mail’s stock market float, were summoned before a parliamentary committee to explain why they priced the near 500-year-old firm so far below its current market value.

Royal Mail’s shares have rocketed by as much as 80 per cent since the Government sold a 60 per cent stake in October for 330p per share, sparking criticism from unions and opposition MPs that the taxpayer had been short-changed.

The spotlight on the sell-off, one of the most significant since John Major’s Conservative Party sold the railways in the 1990s, comes as Britain is aiming to offload stakes in RBS and state-backed rival Lloyds Banking Group.

Citigroup, Deutsche Bank, JPMorgan and Panmure Gordon, none of whom worked on the listing, also went before the committee to discuss pitches they had made to the Government several months before the sale, in which they valued Royal Mail’s equity at £3.7bn to £8.5bn.

The eventual float, which also saw the state hand a 10 per cent stake to Royal Mail staff for free, valued the postal firm at £3.3bn. The stock was trading at 543p yester- day.

“The current price is not reflective of what we could have sold 600 million shares for,” UBS banker James Robertson told the Business Innovation and Skills committee, adding that varying views of risks facing Royal Mail such as its lack of proven profitability led to differing valuations by the banks.

“330p was the price that we could have sold 600 million shares to the target investor base of blue-chip institutions.”

Richard Cormack, co-head of equity capital markets at Goldman Sachs, agreed, saying feedback from potential investors on what they were prepared to pay and the large number of shares on offer were among factors that had determined the price.

Strong equity markets have helped see the amount raised in London listings more than quadruple over the last year.

Meanwhile, UBS advised investors to sell shares in Royal Mail warning there was too much optimism about future margin growth.