Direct Line flotation risks only raising £1.5bn for RBS

David Hellier
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CITY banks advising on the initial public offering (IPO) of Direct Line Group, London’s largest share listing this year, have warned that they might only reach a valuation for the insurance group of £1.5bn, half what many have expected.

According to banking sources, the syndicate analysts’ valuation range, which is a forerunner of the official price range that will be announced in a few days’ time, is between £1.5bn and £4bn.

RBS is expected to give notice of its intention to float an initial stake in Direct Line today, having been told by the EU to sell the business following its acceptance of state aid in the banking crisis.

Bankers say syndicate members remain concerned about the scepticism among London fund managers about new issues and fear they will have to offer Direct Line shares at a significant discount to peers in the sector.

“I’d say that it’s even money between whether this thing goes on to be IPO’d or gets bought out by a private equity group,” said one senior banker yesterday.