Royal Mail Secures £1.4bn Debt Deal
Royal Mail has lined up borrowing facilities totalling £1.4bn to smooth a historic privatisation deal that is expected to be launched by Government ministers on Thursday.
Sky News can exclusively reveal that the state-owned postal operator has secured agreement from a syndicate of banks for two separate debt facilities worth £800m and £600m.
The new arrangements are designed to help Royal Mail secure sufficient funding to see it through its early years as a company majority-owned by private investors for the first time in its near-500-year history.
Details of the debt facilities, which will support Royal Mail's working capital requirements, will be contained in a document known as an Intention To Float announcement.
The timing of the privatisation statement had still not been officially confirmed on Wednesday night, but people close to the situation said it was almost certain to be made on Thursday before the opening of stock markets in London.
Vince Cable, the Business Secretary, and Michael Fallon, the Business Minister, are expected to take to the airwaves to explain their decision to inject private capital into Royal Mail despite the threat of industrial action from restive trade unions.
The sell-off of the company by issuing shares to institutional and retail investors is likely to value it at roughly £3bn, making it the biggest UK privatisation for decades.
It will also be among the most contentious sales of state assets ever undertaken, following a string of failed attempts by previous governments.
Royal Mail's new ability to borrow at commercial rates from banks will be viewed as significant by prospective City investors because the company has relied in the past on the Government to support it financially.
The flotation announcement will also refer to the threat of a strike - on which Royal Mail employees will be balloted next month - but will reflect a pledge made by ministers in recent weeks that they will not allow the privatisation to be derailed, according to people familiar with the statement.
Sky News disclosed last week that Royal Mail would commit to a generous dividend policy in order to entice investors to back the flotation.
The company is expected to make a commitment to a specific shareholder payout for the current financial year, as well as a general intention to distribute up to about 50% of its profits in the form of dividends in subsequent years.
"This will be an income stock for investors despite the continuing decline in the company's core letters business," said a person close to the group earlier this week.
Royal Mail directors are understood to have agreed to the dividend pledge along with other details of the initial public offering at a board meeting on Wednesday morning.
Postal operators in other European markets tend to pay out at least 40% of their earnings in dividends although Royal Mail would be expected to retain a major chunk of its future profits as it continues to invest in the modernisation of the company.
The company's flotation will include an eventual distribution of 10% of Royal Mail shares to 150,000 of its employees and an offer of shares to ordinary retail investors. At an overall company valuation of £3bn, the employee shares would be worth in the region of £2000 per person.
Royal Mail's profit more than doubled to just over £400m in the year to March as the modernisation plan of Moya Greene, chief executive, gathered pace.
Ms Greene will address opponents of the privatisation when she meets CWU members in Birmingham on Thursday.
The union is seeking a better deal on pay and conditions for Royal Mail's workforce than the 8.6% basic pay rise offered by company executives.
Royal Mail and the Department for Business, Innovation and Skills declined to comment.