Cable must explain if customers and taxpayers are short changed by Royal Mail IPO

5 October 2013 

The Rt Hon Dr Vince Cable MP

Secretary of State for Business, Innovation and Skills

Department for Business, Innovation and Skills

1 Victoria Street,

London SW1H 0ET

 

5 October 2013

Dear Vince,

ROYAL MAIL PROPERTY ASSETS

I am writing with regard to the privatisation of Royal Mail, amid concerns that taxpayers may be significantly short changed by the IPO.

As you know, the Labour Party has stood alongside a broad coalition of groups opposed to your plans for the privatisation of Royal Mail. However, you are proceeding despite the issues raised by them and the very real concern that customers and businesses will lose out.

Now that you have determined to proceed and shares in the Royal Mail will be traded from 11 October, you and the government are obliged to secure the best return for taxpayers from the IPO. It is not at all clear from the information provided in the IPO prospectus that this is the case.

An unusually short timetable has been set for the IPO process itself, with the prospectus being published late last week without adequate time for scrutiny being possible in the House in advance of 8 October 2013, the deadline by which applications in respect of the retail and institutional offer are to be made.  In light of this, I would ask that – as a matter of urgency – you address the issues and questions I raise below 

The prospectus confirms that Royal Mail currently operates from 2,000 sites across Britain including 45 mail centres, 8 regional distribution centres, 1,400 delivery offices as well as other offices and administrative buildings.  It also highlights that within Royal Mail’s property portfolio in London, three major sites are identified as being “surplus to requirements” all of which are located in prime residential locations in inner London: Mount Pleasant, Nine Elms and Paddington, where plans for future development already exist.

Some media reports have attached a value of more than £500million to the Nine Elms site and a value of £1 billion to the Mount Pleasant site. In light of this, it seems odd that when the prospectus was published, the stated offer price range was between £2.6 billion and £3.3 billion. 

There may be an explanation for this but, in the absence of an explanation from you, many will conclude that the Royal Mail has been significantly undervalued given the potential for a privatised Royal Mail to sell off prime development sites across the country and relocate facilities to other locations where property prices are cheaper – something which does not appear to have been fully considered or taken into account in the sale price.

Furthermore, the prospectus document does not clarify which of Royal Mail’s other 2,000 sites across the country have been earmarked for potential sale and development or what work has been carried out on this. Customers will want reassurance that delivery sites used as pick up points for parcels and letters will not be moved to distant locations with local facilities lost.

In light of the above, it is perhaps unsurprising that a report by Panmure Gordon published this week suggest Royal Mail has been significantly undervalued, with the true value of the company being a third higher than the price the Government is likely to receive for the sale. This means the taxpayer may lose out to the tune of half a billion pounds when Royal Mail is listed on the London Stock Exchange in a few days’ time.

With privatisations in the past we have often seen the taxpayer losing out as assets are sold. To provide reassurance that taxpayers will not lose out with from the sale of Royal Mail, please clarify the following:

1.       Whether Royal Mail’s property portfolio has been valued independently at its full open market value for property development; and why this has not been fully disclosed in the prospectus? Has a full schedule of Royal Mail’s properties and their sale values and development potential been drawn up?

2.       Which of Royal Mail’s thousands of sites across Britain have been earmarked for sale after privatisation or identified as ‘surplus to requirements’ and what windfall would their sale generate?

3.       Given existing plans to sell off prime Royal Mail sites in London - which could generate billions of pounds of profit - why does the prospectus document fail to fully explain or take into account the proceeds of these sales?

4.       Many companies with large property assets have sought to capitalise on their property assets by entering into sale and leaseback arrangements. Can you confirm whether Royal Mail is considering a sale and leaseback programme after privatisation?

5.       Whether any clawback mechanisms been established for the proceeds of Royal Mail asset sales in relation to Royal Mail’s pension fund, the taxpayer or other liabilities?

6.    Do you share my concern that Royal Mail’s share price has been significantly undervalued and that taxpayers are set to be short changed; and please can you outline what safeguards were put in place as part of the sale process – including in light of the unusually short timetable for the sale of shares – to ensure that value for the taxpayer is maximised? 

I look forward to receiving your reply imminently.  As you would expect, I shall also seek to raise these issues in the House with you at the earliest opportunity.

Yours sincerely,

 

Chuka Umunna MP

Member of Parliament for Streatham

covering Streatham and parts of Clapham, Balham, Tulse Hill and Brixton

Shadow Secretary of State for Business, Innovation & Skills