The government has initiated a process to sell its final stake of 14% in UK's postal service company Royal Mail, in line with its privatisation strategy outlined by Chancellor George Osborne during the July budget. He had stated the government's intention to raise about £32bn (€43.1bn, $49bn) in the current financial year from major asset sales.
As of 12 October's (Monday) stock market price, the government's stake in Royal Mail is valued at £660m. While previous share sales of Royal Mail have been to private investors and employees, this time it could be sold to institutional investors such as pension funds. According to bankers, there was a solid demand especially from domestic and US institutional investors for shares of Royal Mail, in spite of the footsie 100 index closing down 0.7%.
The government's first stake sale in Royal Mail dates back to October 2013 when it raised about £2bn in exchange for a 60% stake. Its second stake sale was in June, where the government raised around £750m by selling a 15% stake. The current deal would be its final stake sale.
"The universal postal service is strongly protected by law and Ofcom has a duty to ensure its provision. Therefore the Government sees no policy reason to retain a stake in Royal Mail" a spokesperson for the Department for Business said. Post this deal, Royal Mail will continue to work with the government-owned Post Office as the two institutions are bound by a ten-year contract signed in 2012 whereby Royal Mail will deliver through Post Office services.
Other assets in which the government has sold its stake so far, apart from the two sell-offs of stakes in Royal Mail, include selling shares in RBS and Lloyds Bank. Going forward, it could sell a £13bn portfolio of Northern Rock mortgage assets, a portion of the student loan book and Channel 4 or Ordnance Survey.