Unmasked: The city institutions given privileged status in the controversial Royal Mail flotation

The Bureau reveals the shareholders given priority status in the controversial Royal Mail flotation. (Image: Royal Mail via shutterstock.com)

Hundreds of City institutions registered interest in Royal Mail shares in the run up to one of the most controversial privatisations this century.

They were joined by hundreds of thousands of ordinary members of the public.

But most investors, whether big or small, went away empty-handed because the float was oversubscribed 23 times.

Some 17 institutions were given “priority investor status” by Goldman Sachs and UBS the Royal Mail’s global co-ordinators (GloCos).  These 17 institutions, in Vince Cable’s words were “the high quality institutions of the type that would form the core of a long-term supportive investor base.”

Of the 17 priority investors, 16 were actually allocated 22% of Royal Mail.  

Priority investors committed to buying Royal Mail at 250p – 80p below the offer price, even in the event of threatened industrial action by postal workers and a possible US government debt default.

Unmasked

So who were the privileged 16 – the priority investors that were given the most shares in Royal Mail and who were expected by the government to act as stable, long-term investors?

Until now, the identity of the priority investors was one of the City’s most closely guarded secrets. The government, in fact, blocked freedom of interest requests on the grounds that disclosing who they are would breach commercial confidentiality even though it is clear the majority of these firms have profited handsomely from a public asset.

The Bureau accessed Royal Mail’s register of beneficial interests to examine who owned the biggest slices of the postal operator after it was sold.

By comparing this information to a graphic contained in the National Audit Office report showing changes of shareholdings in the Royal Mail’s 21 largest investors, a picture of the priority investors emerges.

Four of the largest ‘priority investors’ appear to be sovereign wealth funds belonging to Singapore and Kuwait together with US based Capital Group and Lansdowne, a UK hedge fund.

Lansdowne is known for its close links to the Conservative Party. Its co-founder, Sir Paul Ruddock, retired from the firm but still a substantial beneficiary, has donated over £700,000 to the Conservatives according to Electoral Commission data. Peter Davies, co-head of development strategy at Lansdowne was best man at George Osborne’s wedding. Lansdowne was a short seller of Northern Rock prior to its collapse.

Capital Group, based in California and one of the world’s largest investment managers, had a holding of 20,244,100 shares at the close of trading on October 15. Just one week later it had only 3,060,000 which would have yielded a potential profit of tens of millions in the space of seven days.

A likely priority investor is Gazelle with an allocation of 16m shares initially worth £52.8. Gazelle has no identifying information on Royal Mail’s shareholder register – not even a postal address. The Bureau approached an investment adviser with links to a hedge fund called Gazelle but he denied owning shares in Royal Mail.

Two other apparent priority investors that sold a tranche of their holdings at a swift profit appear to include Och-Ziff,the US alternative asset manager who declined to comment, and UK pension firm, Standard Life.

Documents passed to the Bureau show that Standard Life made a £25.8m profit on its allocation of Royal Mail shares.

Of the 16 priority investors, 12, perfectly lawfully, sold some or all of their holdings within a few weeks of the float.

Of those, six priority investors sold out completely so scooping profits running into tens of millions of pounds.

Mystery surrounds the identity of seven priority investors.  These investors sold out completely within a few weeks of the float and some may have sold out on the first day of dealings. The Children’s Investment Fund is the Royal Mail’s biggest shareholder with over 4%. It was not a priority investor.

Implications

So were those institutions lucky enough to get hold of Royal Mail favoured clients of the banks organising the sale?

Was it a case of the Square Mile looking after its own?

The suspicion won’t go away that City financiers advised politicians and government officials to the detriment of the taxpayer.

Vince Cable publicly expressed his intention that the Royal Mail shareholder base should be filled with long-term, stable investors. Today, the Royal Mail shareholders are dominated by hedge funds.

Lazard’s and Goldman Sachs declined to comment on issues raised by the Royal Mail float. UBS failed to respond.

The government rejects any suggestion that value for the taxpayer was not sufficiently prioritised and that it allowed the Royal Mail to be sold on the cheap.

“Our primary objective was to secure the future of the universal postal service by completing a sale of a majority stake in Royal Mail in order for the company to be able to access capital markets,” a spokesman said.

“A failed sale would have been a very poor outcome for the taxpayer and it would have been wrong to take excessive risks with a company that provides a vital public service across the whole of the UK and employs 150,000 people. We secured a sale at the highest price that we had evidence to support, based on assessments of the company’s value and market conditions at the time of the sale.”

The government is said to be about to announce more privatisations. Among those said to be sold off soon include Eurostar and Urenco, the uranium enrichment company partially owned by the British and Dutch governments. A further sale of Royal Mail shares is also on the cards.