Royal Mail soars on stock market debut

A Royal Mail post officer walks out of a Post Office depot in London, Thursday, Oct. 10, 2013. British Business Secretary Vince Cable defended the government's sale of a majority stake in Royal Mail on Wednesday, saying that more than 700,000 retail investors have sought shares in the initial public offering. Shares are expected to be priced at between 260 pence and 330 pence, giving Royal Mail a market valuation of between 2.6 billion pounds (4.1 billion US dollars) and 3.3 billion pounds. The government would raise between 1.04 billion pounds and 1.72 billion pounds based on these figures.(AP Photo/Lefteris Pitarakis)

ASSOCIATED PRESS

A Royal Mail Post Office is seen in London.

LONDON  — Shares in newly-privatized Royal Mail soared on their stock market debut today, bolstering criticism that the company — which traces its five-century history back to King Henry VIII — was undervalued by the British government.

The shares were up 31 percent to 432 pence ($6.91) by midday, a hefty gain for shareholders who got them at 330 pence. Nearly 150 million shares, or 15 percent of the total issue, changed hands.

“One can only say that investors have clearly given their stamp of approval to the offering,” said Brenda Kelly, senior market strategist at IG.

But the opposition Labour Party argues that the gains prove the government shortchanged taxpayers and could have gotten more than the 1.72 billion pounds ($2.75 billion) it received from the sale.

“The government has a lot of explaining to do,” the Labour Party’s business spokesman, Chuka Umunna, wrote on Twitter.

The privatization is symbolic for the Conservative Party, the main party in the coalition government. Much of its electoral success in the 1980s under Prime Minister Margaret Thatcher was due to the sale at the time of state assets such as British Gas PLC and British Airways PLC.

Business Secretary Vince Cable, who is a member of the Liberal Democrats, the junior party in government, dismissed claims the sale had been undervalued, telling BBC Radio that the sharp price rise was no more than “froth and speculation.”

Big financial institutions, such as pension funds and sovereign wealth funds, are trading the shares today in what is known as conditional trading. Smaller shareholders who tended for only 750 pounds ($1,200) and bought through brokers were able to trade, too. Those who bought shares directly, including postal workers who got free stock, will get their chance to trade on Tuesday.

Following today's surge, the company is now valued at nearly 4.5 billion pounds ($7.2 billion), which means it is easily in the top 100 British companies by market capitalization. As a result, it could be listed on the FTSE 100, Britain’s main stock index, when the index is revised in December — that would attract further investor interest.

Analysts, however, say the company’s share price could be weighed down by the possibility of industrial action by unions unhappy with the privatization and an unclear growth strategy.

Billy Hayes, general secretary of the Communication Workers Union, described the sale as “a tragedy” and said that despite the free shares for employees, a ballot next week was likely to back industrial action.

“Vince Cable, one of the cleverest men in British politics, has made one of the stupidest decisions he is ever likely to make as a politician,” he told the BBC.