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Sell-Offs Eyed to Help Cut Public Debt

Brian Groom
Monday, 22 Apr 2013 | 1:16 AM ET
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Up to half the 21 companies where the U.K. government has a shareholding could be wholly or partly privatized in the next few years, a senior official has said.

The forecast comes from Mark Russell, newly appointed head of the Shareholder Executive, which manages the government's stakes in more than 20 businesses. He is in charge of this year's expected sell-off of Royal Mail and the UK's stake in Urenco.

An announcement about plans for Urenco, the uranium enrichment company, could be made as early as this week by Michael Fallon, business minister.

Mr Russell, a former KPMG corporate financier, said he could see privatization going further, with investors buying part, or all, of up to half the companies in the executive's portfolio within five to eight years.

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He cited Companies House, the Land Registry, the Met Office and Ordnance Survey among the state-owned businesses where there may be opportunities for introducing private capital.

The Shareholder Executive chief said there were only one or two, such as the Nuclear Decommissioning Authority, which would never be transferred fully to the private sector.

"We don't believe government makes for a particularly good shareholder," Mr Russell said in an interview.

"Our belief is that unless there is a good policy reason for government to have a shareholding then really we should be seeking to divest those shareholdings, to the extent that we can realize good value for money."

The Shareholder Executive, part of the Department for Business, Innovation and Skills, is responsible for businesses with a combined 13 billion pound ($19.8 billion) turnover, ranging from Royal Mail to smaller ones such as the U.K. Hydrographic Office.

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It does not include the government's stakes in Royal Bank of Scotland and Lloyds, which are managed by U.K. Financial Investments.

The coalition is increasingly focused on privatizations as a way to cut debt and avoid the need for deeper spending cuts.

Britain hopes to raise up to 3 billion pounds before the end of 2013 by selling its one-third stake in Urenco, jointly owned with the Dutch government and RWE and Eon, the German utilities.

Ministers plan to begin selling Royal Mail, probably through a stock market float this autumn, in the most ambitious privatization since the railways in the 1990s. "We've had really quite encouraging signs from investors," Mr Russell said.

No decision has yet been taken on how much of Royal Mail to sell initially. Independent experts believe the company could be worth about 2 billion-3 billion pounds. Mr Russell said there "won't be a cheap sell-off".

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Flotation could include an offer to retail investors, though Mr Russell said there was unlikely to be a mass marketing campaign on the scale of the "Tell Sid" British Gas campaign in the 1980s.

The coalition favors an initial public offering but is keeping open the option of selling a stake to a financial investor. Ministers have set a deadline of next April for the sale and want staff to own at least 10 per cent of the business.

The Shareholder Executive is working on selling part of the government's student loan book with a face value of about 900 million pounds, though the market value is expected to be lower.

It is working with the Department of Health to privatize Plasma Resources UK, the blood plasma supplier, for more than 200 million pounds, and working with the Ministry of Defence on asset sales.

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The coalition has had mixed success with state asset sales. Tote, the bookmaker, was sold to Betfred for 265 million pounds in 2011 but privatization of National Air Traffic Control Services was abandoned last year.

In addition to pushing for more privatizations, Mr Russell wants to improve performance and governance by promoting "better commercial behavior out of our shareholdings". This involves ensuring that companies with government stakes have properly functioning corporate boards, signing off business plans and monitoring financial performance.

The Shareholder Executive has 130 staff, half from the private sector on secondment or fixed-term contract, and provides corporate finance expertise to Whitehall. It is helping the energy department negotiate with EDF Energy over plans for Britain's first new nuclear reactor in a generation.

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