However, it would not be unwise to ask the question; would the outcome of the Royal Mail privatisation have been worse had the shares been over rather than underpriced?
To answer this question one must look at it in the context of London’s new issues market, which less than two years ago was totally and utterly dormant.
Promising British companies like Edwards, the vacuum technology group, or Luxfer, a specialty chemicals group based in Salford, were being forced to issue shares in the US or elsewhere as the market in London ground to a halt, with institutions and bankers distrusting each other completely.
The biggest complaint from institutions was they had been sold shares in too many companies, like Ocado and Sports Direct, too expensively, (both are trading strongly now, incidentally) and they had consequently had their fill of new issues.
When City A.M. held a roundtable on the subject in June, Aberdeen Asset Management’s Anne Richards admitted that she rarely invested in new issues any more since it was rarely worth the candle. Hers was not an isolated view. Against this backdrop and a hope that retail investors might once again be persuaded to invest in new companies, it was paramount that the Royal Mail flotation didn’t fail.
Although the door to the new issues market has unquestionably opened in recent months, it is still a nervy market and recent falls in the shares of newly-listed Partnership and Just Retirement have tested the new found enthusiasm.
It is true the banks could have raised the issue price in the final hours but the risks of doing so were great. They would have needed to issue a new prospectus and inform 700,000 retail investors. Who knows what their reaction and that of the institutions would have been? Their levels of interest were a long way short of binding orders.
In the end the success of the Royal Mail share sale has helped the London new issues market, which is still nervy all the same. It has further encouraged private investors to flock back to a market they had been ignoring for years. And the government still holds a 30 per cent stake in Royal Mail which it can offload, hopefully, into a buoyant market. Job done.