Govt missed out on 180m in Royal Mail privatisation

The privatisation of the Royal Mail was significantly undervalued, according a new report.

Commissioned by business secretary Vince Cable, the review noted that the government missed out on £180 million for the £2 billion sale due to underpricing. The report states that shares of the postal service should have been valued by up to 30p more than the floatation price of 330p. The reasoning was that there was a high level of demand from banks and individuals.

While the report argued that there was lost revenue, former City minister Lord Myners, leader of the research, highlighted the difficulty of share sale. Speaking on BBC Breakfast, Lord Myners explained that increasing the share price would come with a "substantial risk" adding that it would be a "complicated transaction".

The privatisation of the Royal Mail is still one of the most controversial moves of its kind in history. Despite protests from staff, unions and politicians the 500-year-old service was officially sold off in 2013 sparking mass interest from investors. On the day of floatation shares in the Royal Mail soared by 38 per cent, making it the biggest one-day rise since British Airways was privatised in 1987.

Despite the report highlighting opportunities for the government to generate more funds for the taxpayer from the sale, Lord Myners maintained that the transaction was handled "with considerable professionalism".

Lord Myners said: "The sale was done against a backdrop of global economic uncertainty and a threat of industrial action, which go a long way towards explaining the cautious approach taken throughout the process.

"We found no evidence to challenge the general assertion that an IPO price greater than 350-360p could have been achieved and we accept that a decision to revise the range would have come with added uncertainty and risk. The right decisions were made."

Shares in Royal Mail opened 0.96 per cent up on Thursday (December 18th), hitting 398.00.

Find up to date information on the FTSE 100 and spread betting strategies at City Index