Financial News

  • 6 May 2014, 9:55

Royal Mail Plots Bond Issue As Row Rages On

Royal Mail is weighing a move into the bond markets to raise hundreds of millions of pounds even as the row over the postal operator's privatisation looks set to continue.

Sky News understands that the company has been holding talks with banks in recent weeks about a sizeable bond issue, which would be its first since last autumn's controversial stock market flotation.

Insiders said that discussions about the bond financing were at an early stage and that no decisions had been taken, but analysts predicted that the proceeds could be anywhere between 500m and 1bn.

The proceeds of a bond issue are likely to be used for general corporate purposes, and would allow Royal Mail to take advantage of favourable debt markets.

Supporters of Royal Mail's privatisation suggested on Sunday that the move was likely to be made easier by the fact that the company was no longer fully state-owned.

The Government continues to hold a 30% stake in the company, which at Friday's closing share price was worth approximately 1.8bn.

Last week was arguably the most uncomfortable for the Coalition since October's flotation.

Ed Miliband, the Labour leader, accused David Cameron of handing a select group of investors a "golden ticket" to reap profits from the privatisation at taxpayers' expense.

The Government disclosed the names of 16 so-called priority investors which influenced the decision to price the shares at 330p and which received larger allocations of stock through the IPO.

Sky News revealed that the sovereign wealth funds of Kuwait and Singapore were among these core shareholders, while the disclosure that Lazard Asset Management was also among them prompted further criticism.

That was because the advisory arm of Lazard had been retained by ministers to provide independent advice on the flotation. Its fund management operation was among those which sold shares almost immediately after they started trading, allowing it to claim an 8m profit.

There was, however, no suggestion of wrongdoing, and Lazard's UK chief executive, who testified before two select committees last week, insisted that the share trades were evidence that so-called 'Chinese walls' within investment banks were watertight.

The chief executive of the City watchdog said last week that the 38% rise in Royal Mail's share price on its first day of trading did not warrant an investigation.

A spokeswoman for the Department for Business, Innovation and Skills said the majority of the 16 core investors were still shareholders in Royal Mail.

"There was no agreement - gentleman's or otherwise - on the holding of Royal Mail shares by priority investors.

"As is standard practice for any flotation, we did not seek to lock any investors in as they would have paid less for a stock they could not trade."

Vince Cable, the Business Secretary, told MPs that he would not apologise for the pricing of Royal Mail's shares and repeated his assertion that the sell-off had been a success for taxpayers.

Royal Mail declined to comment on its prospective bond issue.

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