Home' Trinidad and Tobago Guardian : October 17th 2013 Contents OCTOBER 2013 • WEEK THREE www.guardian.co.tt BUSINESS GUARDIAN
COMMENTARY | BG3
Chief editor-business: ANTHONY WILSON
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In the September 19 edition of the Busi-
ness Guardian, the commentary head-
lined "Do trade unionists hate workers?"
raised the issue of the opposition of the
entity representing the majority of work-
ers at Royal Mail to the privatisation of the
venerable UK postal service.
With its deliberately provocative headline
and its photograph of Vincent Cabrera, the
president of the Banking, Insurance and General
Workers Union (BIGWU), the commentary
focused on Royal Mail's IPO, but it concluded
with an analysis of the escalation of the share
price of First Citizens, which had been listed
on the local stock exchange that week.
Some 48,495,665 First Citizens shares---rep-
resenting 19.3 per cent of the total issued shares
of the bank---were offered to local institutions
and individuals at $22 a share. The employees
of the banking group were allowed to acquire
up to 5,000 shares at a 10 per cent discount
($19.80) of the sale price. Those employees
were also offered low-interest loans to purchase
This means that if each of the 1,664 per-
manent employees of First Citizens and its sub-
sidiaries (which includes employees in Barbados,
St Lucia and St Vincent) had taken up their
allotment, they would have purchased 8,320,000
shares valued at $164,736,000.
Those shares would have been worth
$291,200,000 on paper as of October 14. In
effect, the employees of the majority state-
owned bank would have increased their col-
lective wealth by $126.4 million.
Put another way, if an employee of First Cit-
izens had purchased 5,000 shares in the bank
at the IPO price of $19.80, for a total of $99,000,
that employee would have had portfolio that
was worth $175,000 this week. In one month,
the long-term savings of that employee would
have gone up by $76,000.
Instead, while the bank's employees were
allocated 7,274,349 shares (which would have
been increased if all the employees had applied
for at least 5,000 shares), only 1,078 of them
purchased 3,780,716 shares.
In effect, a significant minority of the bank's
employees---about 35 per cent or 586 people---
missed out on a once-in-a-lifetime opportunity
to increase their long-term savings.
In the UK, the David Cameron-administration
arranged for Royal Mail to issue a total of 1
billion shares (which means the company started
off with a market value of £3.3 billion), of which
it offered 521,739,130 shares (about 52 per cent
of the company's total issued shares) at a price
of £3.30 a share.
Just over 100 million shares, equal to 10 per
cent of Royal Mail's issued share capital, were
transferred, free of charge, to an employees'
share ownership plan representing the 150,000
employees of the UK's postal service.
Of the balance of 421.6 million shares, insti-
tutional investors received 67 per cent, (about
282.4 million shares) and individual investors
received 33 per cent (or 139 million shares).
The institutional allocation had been scaled
back to 67 per cent from the 70 per cent to
accommodate the demand of individual
There was huge demand for the IPO: The
offer to institutional investors (pension plans,
insurance companies, mutual funds and hedge
funds) was oversubscribed by 20 times, while
the shares offered to individual subscribers was
seven times oversubscribed.
It is estimated that the retail and institutional
investors offered around £30 billion for shares
initially priced at £1.4 billion.
Those who applied for between £750 and
£10,000--- about 690,000 people---each only
received 227 shares worth about £750.
The 35,000 individual investors who applied
for more than £10,000 had their applications
rejected. A Daily Telegraph report last week
indicated that a total of 800 institutional
investors applied for shares in the privatisation
but only 300 were successful.
Even though the offer documents made it
clear that the Royal Mail IPO was for residents
of the United Kingdom only, there were credible
reports that some of the large sovereign wealth
funds received shares, as well.
Like in the First Citizens IPO, the significant
oversubscription of Royal Mail shares led to
significant increases in the first two days of
In its first four days of trading, First Citizens
jumped from $22 to $37.59 a share---an increase
of 71 per cent---before settling at around $35,
which is a mere 59 per cent increase.
Royal Mail jumped by 38 per cent from £3.30
to £4.55 in its first day of conditional trading
Thursday last and ended trading on Wednesday
Lessons from the Royal Mail IPO
One of the strong arguments made by oppo-
sition parties and trade unions in the UK was
that the initial price of Royal Mail was too low.
The Labour party in England argued that UK
taxpayers were deprived of hundreds of millions
of pound as the signs were that an IPO price
of over £4 would have been more appropriate.
The same argument can be applied to the
First Citizens IPO.
The obvious counter to that argument is that
while taxpayers as a collective may have been
deprived of "profit" from the sale of the shares,
thousands of taxpayers in both the UK and
T&T would have benefitted personally from
the fact that both IPOs were attractively priced.
In both countries, thousands of taxpayers
would also benefit from the fact that the share
prices of both companies are likely to grow in
the future. And both companies will distribute
sizeable dividends streams to their shareholders
twice a year for the foreseeable future.
Because many pension plans, credit unions
and mutual funds in both countries would have
participated in the IPOs, in effect the sale of
shares in profitable government-owned enter-
prises is a way of increasing the wealth of the
One suspects that the decision by the UK
government to offer free shares to the postal
service's workers was based on the desire to
reduce the industrial relations heat at Royal
Mail. The IPO there was done around the same
time that the workers were being balloted on
whether they would approve strike action.
Yesterday, workers at newly privatised Royal
Mail voted to strike for 24 hours on November
4 if they cannot reach agreement with the com-
pany on pay and working conditions. Reuters
reported that the Communication Workers'
Union (CWU) sent ballot papers to over 115,000
Royal Mail staff and said 78 per cent had voted
to strike, on a turnout of 63 per cent. The
CWU, which opposed the privatisation over
fears it would lead to job cuts, in July rejected
Royal Mail's offer of an 8.6 per cent pay increase
over three years.
"What we want is a groundbreaking, long-
term, legally binding agreement that not only
protects postal workers' job security, pay and
pensions but will also determine the strategy,
principles and values of how Royal Mail will
operate as a private entity," CWU deputy general
secretary Dave Ward said in a statement.
In the UK, the workers were required to opt
out of receiving the free shares and a small
number of them, less than 400, did.
Therefore, if a government is interested in
ensuring that employees benefit from a pri-
vatisation or divestment, requiring them to opt
out of receiving the free shares is a reasonable
The other interesting requirement of the
Royal Mail IPO is that the workers there were
required to hold on to their shares for at least
three years. This means that the workers there
would not have been able to take profits from
the bounce in the Royal Mail share price over
the first two trading days.
What about the share allocations?
In the UK, all individuals applying for Royal
Mail shares were restricted to shares worth
£750, which was 227 shares. Thousands of peo-
ple applying for large numbers of shares had
their applications rejected.
In T&T, all individuals applying to purchase
1,000 shares or less received all of the shares
they requested, which was an improvement
from the minimum allocation of 50 shares per
individual. Those applying for more than 1,000
shares had their applications scaled back, but
unlike the UK, no individual application was
The UK approach has the advantage of forcing
wealthy applicants who are really interested in
acquiring the Royal Mail shares as a long-term
investment to purchase shares on the secondary
Which approach is fairer?
I certainly would be interested in hearing
Disclosure: The author participated in the
First Citizens IPO
A Royal Mail post officer walks out of a Post Office depot in London October 10, the day the
company began conditional trading as a newly privatised company. AP photo
Can we learn anything
from the Royal Mail IPO?
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