Retail demand for the Royal Mail shares is the highest the city has seen for more than a decade ago. IGX index said that the private investor excitement in the Government sell-off led to a frenzy in the “grey market” which was not due for the final deadline. The private sectors were betting the stakes that Royal Mail’s share price will commence trading at £4.03 – more than 70p higher than the Government’s top guide price.
A chief strategist at IG index commented that the last time he was able to see a grey market as popular as the one trending in the market today, was in nearly over a decade ago. City brokers said that the institutional demand for shares is likewise high with many putting in the vast amount of orders in the expectation that allocations will be scaled back as well.
The Royal Mail was considered undervalued by nearly £1 billion. Investors are expecting that the Royal Mail to go into the FTSE 100 and so many are trying to get the weight they are anticipating to bolster their stocks to a larger scale.
Hedge fund investors have also applied for larger allocations despite the expectations that the shares will jump as much as 20pc in the subsequent trade. The government itself will sell a minimum of 52pc of Royal Mail with an additional 10pc stake allocated for their staff. The seemingly overwhelming majority of Royal Mail Staff had decided to accept the share offer, despite the threat of strikes from unions that are very repugnant to the opposition.
Of the stake being sold at 70pc being offered to its institutional investors and 30 pc will go to private shareholders. If the demand is high enough, the government will considerably make more shares available up to a maximum of 60pc of its present holding.
The initial private offering was originally priced between £2.60p and £3.30p. The guidance was later on revised to between the amount of £3 and £3.30 which could deliver a value of the company at £3.3billion.
Royal Mail was seeking to create a lot of interest but the Government still needed to strike a balance between making the IPO enticing at the same time avoid a flop.
Retail investors are resorting to spread-betters because the majority of the shares is being offered to institutional investors. A lot of shares that were applied for were scaled back and that there will be more exposure to the Royal Mail despite their allocation not pushing through. Some retail investors reckoned that the excitement was getting out of control. There were also several notable retail sellers for the first time that the thought of a £4 price as being over-extended.