Cable Defends Royal Mail IPO Amid Labour Charges of ‘Fire Sale’

U.K. Business Secretary Vince Cable defended the handling of the sale of shares in Royal Mail Group Ltd. after the opposition Labour Party said the price has been set too low as part of a “fire sale.”

In a letter to his Labour opposite number,Chuka Umunna, who has said Royal Mail is being undervalued, Cable warned there is a danger of giving small investors the idea that the shares are bound to rise when they begin trading on Oct. 11.

“It is irresponsible to imply that a share offering looks significantly undervalued,” Cable wrote, according to a copy of the letter released by his department today. “I think you should consider the risk that you may be influencing the decisions of retail investors. Equity investment always involves risk, particularly when the company in question is new to the market. In the light of this it is dangerous to imply that there is an easy bargain to be made.”

The U.K. government is offering Royal Mail shares at a price of 300 pence to 330 pence ($4.84-$5.33) apiece. The sale closes today.

The initial public offering opened on Sept. 27 and was fully subscribed within hours, mainly on institutional demand, people with knowledge of the situation have said. The privatization of the 360-year-old postal service will be the biggest in the U.K. since former Prime Minister John Major broke up British Rail in the 1990s.

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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