Royal Mail Shares Surge 38 Percent On Debut

Royal Mail Shares Surge 38 Percent On Debut

The Royal Mail Plc (LON:RMG) IPO received thumbs up from investors on Friday. Shares of the British postal service operator jumped more than 38% after its debut on the London Stock Exchange. The offering values Royal Mail at about £3.3 billion or $5.28 billion. It was undoubtedly the most anticipated IPO in London this year.

Royal Mail biggest privatization in over a decade

Royal Mail Plc (LON:RMG) shares will officially be listed on coming Tuesday, but conditional trading began today. Shares of the 500 year old company were initially priced at 330 pence ($5.27) before the bell. But within 30 seconds of trading they soared 38% to 456 pence. Though the stock eased later, it was still up more than 31%.

British government is offloading 52% stake in the company to raise £1.72 billion ($2.8 billion). Of that 67% was made available to institutional investors and 33% to the public. The government has handed a 10% stake in the company to the Royal Mail Plc (LON:RMG) employees, and will retain the remaining 38% holding.

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It was the biggest privatization since the government sold railways in 1990s. Over the past few decades, the government has sold many companies including BP Plc (LON:BP) (NYSE:BP), British Airways Plc (OTCMKTS:BAIRY) and BT Group Plc (NYSE:BT) (LON:BT.A). The Royal Mail Plc (LON:RMG) IPO was oversubscribed because the government encouraged individual investors to participate in the offering. People who had applied for £750 made an instant profit of more than £250. However, many institutional investors faced some obstacles because the government rejected all applications for shares worth more than £10,000.

Royal Mail sold too cheaply

Many previous governments tried to privatize the Royal Mail Plc (LON:RMG) but they faced heavy opposition. Even today’s debut is highly controversial. Many opposition politicians said the government sold the postal service too cheaply. ETX Capital trading chief Joe Rundle told CNBC that the government should have priced the Royal Mail Plc (LON:RMG) at £4 or 400 pence.

Investors consider postal service will grow rapidly in coming years with the help of e-commerce. Royal Mail Plc (LON:RMG) has seen solid growth as more consumers purchase goods online, that are delivered by mail.

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