Azure Global : 10/08/13

Tuesday 8 October 2013

East coast rail pays out millions in dividends to taxpayers

State-run train service paid out more than £200m in 2012-13 and is expected to return around £1bn over next five years

East coast, the sole state-operated train service in the national rail network, paid more than £200m in dividends and premiums to the taxpayer in 2012-13, figures to be published on Tuesday show.

Industry sources now predict that Directly Operated Railways (DOR), the Department for Transport's arms-length company, will return around £1bn in total to the government over the five years it expects to run the service.

DOR stepped in after National Express handed back the keys two years into the seven-year franchise it won in 2007 to run the long-distance train service from London to Edinburgh.

Action for Rail, a trade union-backed campaign, is pressing to keep the line in public hands. The Labour party has also criticised the government for prioritising the privatisation of east coast in the redrawn rail franchising timetable.

Sir Richard Branson's Virgin has expressed an interest in running the line, along with a host of foreign, state-backed train operators. Last week a French joint venture of Keolis-Eurostar, two companies majority owned by state railways SNCF, confirmed it would bid to run the line.

An invitation to tender will be issued to shortlisted operators in February 2014. The contract is due to be awarded in October next year for a handover in February 2015, just ahead of the next general election. Any delay would give a potential Labour government the opportunity to keep the line in public hands.

Article Source : http://www.guardian.co.uk

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China says US has 'responsibility' to resolve debt ceiling row

Vice-finance minister Zhu Guangyao outlines concern over 'safety of Chinese investments in the United States'

A senior Chinese government official on Monday publicly warned Washington about the dangers of the current row over the US’s debt ceiling.

In the Chinese government's first public comments on the deadlock Zhu Guangyao, the vice-finance minister, told reporters in Beijing: “The United States is totally clear about China's concerns about the fiscal cliff. We ask that the United States earnestly takes steps to resolve in a timely way before 17 October the political [issues] around the debt ceiling and prevent a US debt default to ensure safety of Chinese investments in the United States and the global economic recovery. This is the United States' responsibility.”

China is the largest foreign holder of US debt, owning about $1.277tn of US Treasury bonds at the end of July, according to the Treasury. For bond holders, economists and other investors, the row over the debt ceiling is likely to have a far greater impact than the current government shutdown.

The US Treasury secretary, Jack Lew, warned again on Sunday that by 17 October the US will be left with about $30bn in cash to meet its obligations – which are about $60bn a day – unless Congress acts soon to increase the US’s borrowing limit. “Congress is playing with fire,” Lew told CNN”s State of the Union. “If the United States government, for the first time in its history, chooses not to pay its bills on time, we will be in default. There is no option that prevents us from being in default if we don’t have enough cash to pay our bills.”

Republican House Speaker John Boehner said at the weekend that his colleagues would not agree to raise the debt ceiling unless any deal included measures to rein in public spending. President Barack Obama has accused Republicans of “blackmail” in their attempts to kill his healthcare reforms, known as Obamacare.

Zhu said China and the US were "inseparable". "The executive branch of the US government has to take decisive and credible steps to avoid a default on its Treasury bonds," he said. "It is important for the US economy as well as the global economy."

"We hope the United States fully understands the lessons of history," Zhu added, referring to a similar row over the debt ceiling in 2011 that led to a historic downgrade of the US's AAA credit rating and panic on stock markets worldwide.

Zhu’s comments came as US stock markets fell following the continued impasse over the shutdown and debt ceiling over the weekend. The Dow Jones Industrial Average fell 136.34 points, or 0.9%, to 14,936.24, below the 15,000 mark it reached for the first time last May. All the other US markets closed down, with the S&P 500 dropping 37.38 points (0.98%). Most European and Asian markets closed down as rises were seen in US Treasury notes and gold prices, both traditionally seen as safe havens. The dollar lost ground against the yen and the euro.

Daniel Rosen, founding partner of the research firm Rhodium Group, said political infighting in Washington was likely to have a profound impact on Sino-US financial relations.

“I believe that in the final analysis the US is going to pay its debts and is not going to default on its obligations,” he said. “Even assuming that case, it is politically untenable for the government of China to be in a position, whether frequently or occasionally, where the life savings of the country are going to eroded by the political shenanigans of another country.”

Rosen said China was looking at ways to move its huge dollar denominated investments into the private sector and out of the government’s coffers before the current crisis began. “But for the moment they are trapped and they have to deal with the portfolio they have,” he said.

Article Source : http://www.guardian.co.uk

Royal Mail IPO: ministers to increase amount of public shares

Government is making plans to ensure 'smaller investors get their share', and do not lose out to banks and hedge funds

The government will bow to a mounting outcry and ensure the public do not lose out to banks, hedge funds and other financial speculators in the £3bn selloff of Royal Mail shares.

The Guardian understands that ministers are making plans to increase amount of Royal Mail shares available to the public at the expense of those set aside for banks, following overwhelming demand in the biggest privatisation since the sale of the railways in the 1990s.

Michael Fallon, the business minister in charge of the flotation, said he would do all he could to ensure "smaller investors get their fair share", ahead of Tuesday's midnight deadline to buy stock.

Fallon had promised that about 30% of the shares on offer would be reserved for the public but is now understood to be planning to increase this proportion available for small investors and cut back on the amount going to banks if public demand massively exceeds supply.

He said: "No decisions have been taken on allocation but I'm committed to making sure smaller investors get their fair share."

The government has been under pressure to ensure the public do not lose out to banks and hedge funds, which are hoping to make instant profits from the sale of the 500-year-old postal service.

Chuka Umunna, the shadow business secretary, said: "This is turning into a dream and a bonanza for City speculators and hedge funds, meanwhile the taxpayer … is getting massively shortchanged."

Financial institutions have ordered several times the number of shares available to them, amid reports that the government hugely undervalued the company, and the shares could soar by more than 30% on their first day's trading on Friday.

Stockbrokers have also reported unprecedented public demand for the shares, to be priced at between £3-3.30 each, with some staying open all weekend and until midnight Tuesday when applications close.

Alastair McCaig, market strategist at IG Index, said public demand for Royal Mail's shares has been "even stronger than we saw in Facebook".

IG said excitement over the flotation had sparked a frenzy in the pre-trading "grey market", with investors betting the shares will rise to £4 on Friday – 70p more than the maximum the government has allowed itself to sell them for.

If they do reach £4, the government will have lost out on an extra £400m it could have made if it priced the shares at £4, rather than £3.30.

Panmure Gordon analyst Gert Zonneveld – the only analyst to have published research on the shares – has said he is convinced the government undervalued Royal Mail by more than £1bn. Zonneveld said the shares should have been sold between £3.70 and £4.50, considerably higher than the government's initial range.

Vince Cable, the business secretary, on Monday hit back at Umunna for accusing the government of undervaluing the company and selling it on the cheap.

"It is irresponsible to imply that a share offering looks significantly undervalued," he wrote in a letter.. "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.

"Panmure Gordon is only one voice and their report notes both near term risks and opportunities. We are alert to value for money criticism and have learnt from the mistakes of previous governments' asset sales. QinetiQ is one key example under the last government."

In 2007, the National Audit Office criticised the float of defence company QinetiQ saying taxpayers lost out to the tune of tens of millions of pounds.

The government's valuation of Royal Mail is based on advice from investment banks Goldman Sachs and UBS after £21.7m in fees was paid to advisers. Applications for shares close at 11.59pm on Tuesday. The minimum public application is £750. If the public apply for more shares than those available they will "scaled back", meaning applicants will not be able to buy all the shares they have applied for. Big applications will be scaled back at a greater rate than small applications.

Up to 62% of the company will be listed on the stock market on Friday. A further 10% will be given to Royal Mail's 150,000 employees.

The final price the shares sell at will not be decided until the company floats on the stock market on Friday.

Trading places

One of the accusations levelled at the Thatcher and Major governments was that they sold off Britain's nationalised industries too cheaply. A look at how the shares fared on their first day of trading lends weight to this argument, although long-term returns give a clearer picture of a company's value.

British Telecom was the Thatcher government's first big privatisation. Its shares jumped 35% on the first day of trading in 1984, but when two later tranches were offered the price rose only 5% each time. British Gas followed in 1986, helped by its "Tell Sid" campaign. Its shares rose 10% on the first day. Powergen and National Power both soared by about 22% on their first trading days but when further batches of shares were sold later the price rose less than 5% in both cases.

In 1987, British Airways' shares leapt by two thirds on their first day of trading. But later that year BP's privatisation was launched at the time of Black Monday when shares plunged in New York and London on 19 October. Underwriters were left holding shares priced at 330p that were trading at 262p.

Article Source : http://www.guardian.co.uk