Coalition gears up for privatisations

Royal Mail seeks banks to guide it to market listing

Government ready to sell Lloyds stake by next year

A NEW wave of privatisations will get underway in the coming months after the government last night fired the starting gun on the sale of Royal Mail, as it begins to gear up its plans to return Lloyds to the private sector – potentially as soon as the end of next year.

Business minister Michael Fallon last night said the government would kick off a public tender within days for a syndicate of banks to float the 378-year old postal services firm.

And Lloyds continued its restructuring yesterday by selling off its Spanish retail arm for £72m, freeing up capital and shifting its focus more closely to the UK market. City A.M. understands a sale could come in the next 18 months, and analysts now expect the lender to pay dividends next year, a key milestone towards privatisation. The government owns a 39 per cent stake in the lender, which is due to update the market today.

The bank’s share price recently hit 56p, close to the 62p that the government needs if it wants to get its bailout money back on the sale.

Officials hope regulators will finalise the details of new capital rules in the coming months, giving investors clarity on the state of the banks. Combined with rising stock markets, a stabilising economy and an expected increase in Lloyds’ lending next year, City A.M. understands that this could lead to the bank being privatised before the end of 2014. Options for the sale include offering chunks to institutions, or taking more time to work up a full retail offering which could see widespread ownership.

The Treasury and Lloyds declined to comment, but a source close to the bank said the timescale is feasible if the lender racks up several profitable quarters.

“Much depends on the market environment, but it doesn’t seem unreasonable providing the issues have been resolved,” said analyst Gary Greenwood from Shore Capital.

“I certainly think a sale of Lloyds is more likely than RBS in that timeframe. Also the government will want to have something positive to say on bank share sales pre the next general election in 2015.”

Meanwhile a tender is set to go out within days for banks to apply for a proposed float of Royal Mail, with the government hoping to complete an initial public offering of shares sometime before April 2014.

Lead advisers for the float are to be appointed by the end of May and the government is also exploring plans to tap the bond market to finance modernisation at Royal Mail.

Fallon said: “Our decision will not be based on ideology. It will be a practical, logical and commercial decision. And very few people now question whether the likes of BT, BP or Rolls Royce should have remained state owned.”

The float follows months of meetings between the government’s Shareholder Executive – responsible for stock market investments – and institutional investors about the appetite for the stock.