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Small Investors Favoured in Royal Mail Privatisation

Small Investors Favoured in Royal Mail Privatisation

In the widely publicised privatization of the Royal Mail, it seems that small investors will be getting the best deal when it comes to allocating shares.

Although it was thought that everyone who applied for the shares would be getting them, Business Secretary Vince Cable said an astounding number of applications from more than seven times the amount they were expecting means that some investors may miss out.

Professional and individual investors are thought to have £15 billion to spend on Royal Mail shares, but with only £517 million worth of shares on offer, ministers need to put their heads together to tackle the problem.

They had decided to go down the same route as back in the 1980s, when a high demand for British Telecom and British Gas shares led to a similar situation. The system used in those cases accepted all applications for smaller shares, but it was not feasibly possible to hand out the larger shares.

On Thursday, a maximum number of shares will need to be decided and although it does mean that anyone applying for more than this may either miss out or receive fewer shares than they were expecting, anyone who applied for the lowest amount of £750 will receive all of it regardless.

Mr Cable is leaning towards a £10,000 cut-off, and investors applying for more than that actually make up less than 10% of applications. The Ministers need to agree on the amount which is why a deadline has been implemented for them to reach a decision.

Because of such high demand, the government has levelled the price of the Royal Mail shares at 330p – they originally cost between 260p and 330p. There has also been talk that they are available on the grey market but at more than 400p per share.

10% of the shares have been set aside for employees of Royal Mail, and Mr Cable said that out of their 150,000, only 371 decided not to take the offer.

Condition trading will begin on Friday, before officially launching the Royal Mail shares on the London Stock Exchange next Tuesday.

Overall, more than 90% of those applying for shares will be successful, unaffected by the decision-making of Thursday. Mr Cable said that the motive behind such affordable minimum application size was to make the shares more accessible for those with limited means, from an “ordinary household”, for them to have a chance at competing with bigger companies’ bids. Obviously, this proved successful with the overwhelming interest in the shares.

Royal Mail are hoping that money raised from the privatization of their company will go towards a revamp that will put them ahead in a very competitive market.

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