Small investor frenzy is a Royal Mail sell-off headache

Press reports suggest that the Royal Mail sell-off, which closed at midnight on Tuesday, has been massively over-subscribed by institutional investors and smalltime share-buyers alike. This is apparently causing a headache for the government. Not least because the share offer has been 15x over-subscribed in total, according to reports.

It was originally planned that the share offer would be split 70/30 between big investment organisations and individual share buyers. However, small investors, who could spend upwards of £750 on the offer have signed up in much greater numbers than expected. Apparently, seven times more small investors have subscribed to the share offer than forecast.

Quite simply. Demand has greatly outstripped demand. I can’t think of any more obvious free market evidence that the Royal Mail share offer has been underpriced than this.

Aspiring investors will learn on Friday whether they have been successful in their share bid and how many shares they will receive and for how much. But it’s expected that smaller investors will be prioritised over bigger, city investment bodies.

Vince Cable, the Business Secretary, and Michael Fallon, the minister in charge of the sell-off, met on Wednesday night to discuss the problem. Cable said during the day that 700k big investors had applied in time. City pundits claim that small investors have bid for £3.5 billion of shares. Under the original plans, only roughly £500 million of stock is available to such investors.

The Prime Minister David Cameron and Nick Clegg, who is reportedly the Deputy Prime Minister, will make the final call on Thursday as to how the shares will be divvied up. We’ll see what happens.