Royal Mail sale to Czech billionaire - why not blocked?
Discussion
skwdenyer said:
When the Government "sold" the Royal Mail (by a float) in 2013, the Government took over the RM pension scheme. The potential liability then was £38bn, which has now grow to over £50bn.
The Government also got the pension fund's assets. Then-Chancellor George Osborne used those assets to reduce Government's short-term debt - which netted £17bn. A lot of those assets were gilts, which were just given back to the Treasury for free, creating a loss of £11bn.
So was the privatisation massively profitable for the taxpayer? Of course not. All that sleight-of-hand over the pension was used to generate less than £2bn in initial sale proceeds.
Even better, about a third of the float shares were pre-sold on preferential terms to hedge funds, who flipped them for almost double what they paid for them in days.
The ultimate proceeds from privatisation were £3.3bn or so. RM has been paying out dividends. Kretinsky is borrowing £2.3bn to part-fund the acquisition, saddling the business with enormous requirements to service his debts. This is on top of the business' existing £1.7bn - which include £1.4bn of bonds with potential pay-on-change-of-control requirements.
The magic of course is in the property assets. RM owned 1000 freeholds and 1000 leasholds at flotation. It has sold quite a few off, and banked big profits - and paid them out. It is hard to know what they're really worth, because they're carried at historic cost on the balance sheet.
And how big were those dividends? By 2018, RM had paid out over £1bn in dividends. That's money the taxpayer could have had "for free." The return for investors has been terrific - to get back 33% of your stake in 5 years, and still to own the underlying asset, is a pretty nice return. Especially when the cash to pay those dividends came from debt, which the future business has to service (currently about £100m pa).
The failure of the public to understand the big picture of the sell-off of national assets and, even now, to misunderstand what value is in the business, is really quite extraordinary. Once the takeover is complete, expect to see asset sales to "related" parties at prices which turn out to be rather low, followed by a destruction of the business...
Good postThe Government also got the pension fund's assets. Then-Chancellor George Osborne used those assets to reduce Government's short-term debt - which netted £17bn. A lot of those assets were gilts, which were just given back to the Treasury for free, creating a loss of £11bn.
So was the privatisation massively profitable for the taxpayer? Of course not. All that sleight-of-hand over the pension was used to generate less than £2bn in initial sale proceeds.
Even better, about a third of the float shares were pre-sold on preferential terms to hedge funds, who flipped them for almost double what they paid for them in days.
The ultimate proceeds from privatisation were £3.3bn or so. RM has been paying out dividends. Kretinsky is borrowing £2.3bn to part-fund the acquisition, saddling the business with enormous requirements to service his debts. This is on top of the business' existing £1.7bn - which include £1.4bn of bonds with potential pay-on-change-of-control requirements.
The magic of course is in the property assets. RM owned 1000 freeholds and 1000 leasholds at flotation. It has sold quite a few off, and banked big profits - and paid them out. It is hard to know what they're really worth, because they're carried at historic cost on the balance sheet.
And how big were those dividends? By 2018, RM had paid out over £1bn in dividends. That's money the taxpayer could have had "for free." The return for investors has been terrific - to get back 33% of your stake in 5 years, and still to own the underlying asset, is a pretty nice return. Especially when the cash to pay those dividends came from debt, which the future business has to service (currently about £100m pa).
The failure of the public to understand the big picture of the sell-off of national assets and, even now, to misunderstand what value is in the business, is really quite extraordinary. Once the takeover is complete, expect to see asset sales to "related" parties at prices which turn out to be rather low, followed by a destruction of the business...
skwdenyer said:
A universal flat-rate mail service is a critical piece of infrastructure, without which large swathes of stuff stops working.
That one can leverage that infrastructure to feed the currently-insatiable demand for parcel deliveries is a huge advantage. I mentioned DHL for a reason - the Deutsche Poste was parlayed into a world-leading, massively-profitable international mail and parcel operation.
The failure to understand what was there is why it was flogged off in the first place...
A universal flat-rate mail service is a critical piece of infrastructure, without which large swathes of stuff stops working.That one can leverage that infrastructure to feed the currently-insatiable demand for parcel deliveries is a huge advantage. I mentioned DHL for a reason - the Deutsche Poste was parlayed into a world-leading, massively-profitable international mail and parcel operation.
The failure to understand what was there is why it was flogged off in the first place...
Examples of the stuff that will stop working?
eldar said:
skwdenyer said:
A universal flat-rate mail service is a critical piece of infrastructure, without which large swathes of stuff stops working.
That one can leverage that infrastructure to feed the currently-insatiable demand for parcel deliveries is a huge advantage. I mentioned DHL for a reason - the Deutsche Poste was parlayed into a world-leading, massively-profitable international mail and parcel operation.
The failure to understand what was there is why it was flogged off in the first place...
A universal flat-rate mail service is a critical piece of infrastructure, without which large swathes of stuff stops working.That one can leverage that infrastructure to feed the currently-insatiable demand for parcel deliveries is a huge advantage. I mentioned DHL for a reason - the Deutsche Poste was parlayed into a world-leading, massively-profitable international mail and parcel operation.
The failure to understand what was there is why it was flogged off in the first place...
Examples of the stuff that will stop working?
Email isn’t always reliable. Google’s spam algorithm may dump stuff (other mail providers are available). And it isn’t obvious that forcing digital switchover to everyone for all things is a useful or valid approach.
Besides, despite the naysayers, delivering stuff isn’t going away. It is beyond credibility that a well-managed RM would have allowed a situation to arise in which in my village we get Amazon drivers coming from 50 miles away, daily, to deliver £4 items. It is mad - and maddening - that the universal mail service can’t undercut that sort of operation.
If we don’t want to ring fence RM, we should IMHO damn well force every other mail-like provider to offer the same flat rate pricing for the whole of the UK.
skwdenyer said:
When the Government "sold" the Royal Mail (by a float) in 2013, the Government took over the RM pension scheme. The potential liability then was £38bn, which has now grow to over £50bn.
The Government also got the pension fund's assets. Then-Chancellor George Osborne used those assets to reduce Government's short-term debt - which netted £17bn. A lot of those assets were gilts, which were just given back to the Treasury for free, creating a loss of £11bn.
How do you get the pension liability now as over £50b? it is a fixed pool of liabilities that isn't increasing as people are not joining anymore and pension liabilities increase as a function of discount factor decreasing. long term yields are massively higher now than in 2013. The Government also got the pension fund's assets. Then-Chancellor George Osborne used those assets to reduce Government's short-term debt - which netted £17bn. A lot of those assets were gilts, which were just given back to the Treasury for free, creating a loss of £11bn.
Also, the Hooper report as commissioned by the previous labour government had insisted that the government needed to take on the (at the time in 2009) estimated £10b deficit in pensions in order to get sufficient private capital to bail out the failing service. the effective loss to the government for doing so of £11b netting assets vs present value of liability (27 vs 38) wasn't entirely surprising. those assets were certainly not 'given back to the treasury for free' but used to net off whatever the DMO was requiring and could well have been anything from long term gilts to really long term inflation linked gilts. It wasn't all just 'short term debt' as you claim above even if Osborne did indeed use some rather bloody dodgy trickery to claim that public sector debt was decreased by the deal.
skwdenyer said:
The legal system. Anything that relies upon service of things reliably - benefits, taxes, criminal and civil cases, driving licences. We have actual laws - and vast precedent - around the effect of sending a letter, when it is sent, when it is deemed received, and so on. You might find doing stuff by email more convenient, but the law doesn’t recognise that as automatically valid (and shouldn’t do IMHO).
Email isn’t always reliable. Google’s spam algorithm may dump stuff (other mail providers are available). And it isn’t obvious that forcing digital switchover to everyone for all things is a useful or valid approach.
Besides, despite the naysayers, delivering stuff isn’t going away. It is beyond credibility that a well-managed RM would have allowed a situation to arise in which in my village we get Amazon drivers coming from 50 miles away, daily, to deliver £4 items. It is mad - and maddening - that the universal mail service can’t undercut that sort of operation.
If we don’t want to ring fence RM, we should IMHO damn well force every other mail-like provider to offer the same flat rate pricing for the whole of the UK.
......and all the post from the NHS re appointments, test results etcEmail isn’t always reliable. Google’s spam algorithm may dump stuff (other mail providers are available). And it isn’t obvious that forcing digital switchover to everyone for all things is a useful or valid approach.
Besides, despite the naysayers, delivering stuff isn’t going away. It is beyond credibility that a well-managed RM would have allowed a situation to arise in which in my village we get Amazon drivers coming from 50 miles away, daily, to deliver £4 items. It is mad - and maddening - that the universal mail service can’t undercut that sort of operation.
If we don’t want to ring fence RM, we should IMHO damn well force every other mail-like provider to offer the same flat rate pricing for the whole of the UK.
.
t about who owns it as long as it works.wc98 said:
Mrr T said:
The best data I can find is.
https://commonslibrary.parliament.uk/research-brie...
Inward FDI £2bn
Outward FDI £1.8bn
Thanks for the link. It's probably my lack of understanding but i think we may be talking about different things. I meant the profits from UK companies mainly or wholly owned by overseas entities that used to be owned by UKPlc or UK based individuals. https://commonslibrary.parliament.uk/research-brie...
Inward FDI £2bn
Outward FDI £1.8bn
Inward FDI mean companies in the UK owned by non UK owners and outward FDI means non UK companies owned by UK companies. So the numbers are similar.
As for profits IDS is in the FTSE 250. While it will vary FTSE shares are about 40% foreign owned. FTSE 100 are over 50% foreign owned.
Now some overseas owners may be funds who may in turn be UK owned, and some UK funds will be foreign owned.
We live in an international world.
isaldiri said:
How do you get the pension liability now as over £50b? it is a fixed pool of liabilities that isn't increasing as people are not joining anymore and pension liabilities increase as a function of discount factor decreasing. long term yields are massively higher now than in 2013.
From the horse's mouth at https://assets.publishing.service.gov.uk/media/62d...Cabinet Office said:
The total pension liability at 31 March 2022 is £50.9 billion (31 March 2021: £48.6 billion). This relates to benefits accrued before 2012 for qualifying members, and their beneficiaries, of the RMPP as at 31 March 2022.
skwdenyer said:
isaldiri said:
How do you get the pension liability now as over £50b? it is a fixed pool of liabilities that isn't increasing as people are not joining anymore and pension liabilities increase as a function of discount factor decreasing. long term yields are massively higher now than in 2013.
From the horse's mouth at https://assets.publishing.service.gov.uk/media/62d...Cabinet Office said:
The total pension liability at 31 March 2022 is £50.9 billion (31 March 2021: £48.6 billion). This relates to benefits accrued before 2012 for qualifying members, and their beneficiaries, of the RMPP as at 31 March 2022.
https://www.gov.uk/government/publications/royal-m...
isaldiri said:
skwdenyer said:
isaldiri said:
How do you get the pension liability now as over £50b? it is a fixed pool of liabilities that isn't increasing as people are not joining anymore and pension liabilities increase as a function of discount factor decreasing. long term yields are massively higher now than in 2013.
From the horse's mouth at https://assets.publishing.service.gov.uk/media/62d...Cabinet Office said:
The total pension liability at 31 March 2022 is £50.9 billion (31 March 2021: £48.6 billion). This relates to benefits accrued before 2012 for qualifying members, and their beneficiaries, of the RMPP as at 31 March 2022.
https://www.gov.uk/government/publications/royal-m...
My larger point was that the Government assumed enormous liabilities and left the private sector with a profitable asset for a cheap price. Again.
Nothing has been done to RM in the private sector that couldn’t have been done with it in state ownership. There was no obvious or rational reason (beyond destructive dogma) to just flog it off in its entirety.
skwdenyer said:
The value of future liabilities can go up as well as down
My larger point was that the Government assumed enormous liabilities and left the private sector with a profitable asset for a cheap price. Again.
Nothing has been done to RM in the private sector that couldn’t have been done with it in state ownership. There was no obvious or rational reason (beyond destructive dogma) to just flog it off in its entirety.
Hold on a second - you had said earlier 'the potential liabilities have now grown to £50b'. That was manifestly incorrect and you absolutely did not caveat it with your latest blurb about liabilities going up or down. You just blanket chucked out an accusation about a profligate government that had saddled the taxpayer with a massive liability when it was actually a smaller one than at inception which you chose to ignore because it wouldn't suit your rant My larger point was that the Government assumed enormous liabilities and left the private sector with a profitable asset for a cheap price. Again.
Nothing has been done to RM in the private sector that couldn’t have been done with it in state ownership. There was no obvious or rational reason (beyond destructive dogma) to just flog it off in its entirety.
Your larger point about the government assuming very large liabilities was, as I said, addressed by the previous labour government report on the issue which had said a write off of 9-10b was going to be required. Osborne a few years later doing so for a net liability of 12b was entirely in line with that.
Also, you did not address the fact that the royal mail was puking money and the government was going to have to raise cash for it to continue being functional. As government spending was already constrained, finding a way to flog it off that raised some immediate cash instead rather than diverting more money needed for more important government spending to prop up what was a non-critical asset was not entirely as irrational as you suggest. What departmental spending do you think should have been cut back in order to find the operational losses plus extra capital the royal mail was requiring in order to be kept if you're convinced that it should have remained in state ownership?
The pension situation is more complex than just assuming the net pension liability at the time of privatisation. Successive governments contributed to the net liability over the years: from swapping the pension assets for notional IOUs in the 1970s to 1990s tax rules that limited pension assets to 110% of pension liabilities while simultaneously using Royal Mail as a cash cow for Treasury coffers.
That last point also contributed to the failure invest in modernisation in public ownership. The Treasury set ever increasing negative External Financing Limits which required Royal Mail to hand over cash regardless of business needs or even profits to support the payments. Even as the letter business continued to decline there was still government interference in attempts to modernise the business. It's one of those businesses that really cannot afford to be managed by whatever wins/loses the most votes for a government minister.
That last point also contributed to the failure invest in modernisation in public ownership. The Treasury set ever increasing negative External Financing Limits which required Royal Mail to hand over cash regardless of business needs or even profits to support the payments. Even as the letter business continued to decline there was still government interference in attempts to modernise the business. It's one of those businesses that really cannot afford to be managed by whatever wins/loses the most votes for a government minister.
isaldiri said:
skwdenyer said:
The value of future liabilities can go up as well as down
My larger point was that the Government assumed enormous liabilities and left the private sector with a profitable asset for a cheap price. Again.
Nothing has been done to RM in the private sector that couldn’t have been done with it in state ownership. There was no obvious or rational reason (beyond destructive dogma) to just flog it off in its entirety.
Hold on a second - you had said earlier 'the potential liabilities have now grown to £50b'. That was manifestly incorrect and you absolutely did not caveat it with your latest blurb about liabilities going up or down. You just blanket chucked out an accusation about a profligate government that had saddled the taxpayer with a massive liability when it was actually a smaller one than at inception which you chose to ignore because it wouldn't suit your rant My larger point was that the Government assumed enormous liabilities and left the private sector with a profitable asset for a cheap price. Again.
Nothing has been done to RM in the private sector that couldn’t have been done with it in state ownership. There was no obvious or rational reason (beyond destructive dogma) to just flog it off in its entirety.
Your larger point about the government assuming very large liabilities was, as I said, addressed by the previous labour government report on the issue which had said a write off of 9-10b was going to be required. Osborne a few years later doing so for a net liability of 12b was entirely in line with that.
Also, you did not address the fact that the royal mail was puking money and the government was going to have to raise cash for it to continue being functional. As government spending was already constrained, finding a way to flog it off that raised some immediate cash instead rather than diverting more money needed for more important government spending to prop up what was a non-critical asset was not entirely as irrational as you suggest. What departmental spending do you think should have been cut back in order to find the operational losses plus extra capital the royal mail was requiring in order to be kept if you're convinced that it should have remained in state ownership?
You keep mentioning the Labour report as if you think I'm making a party political point. I'm not. I did not support privatisation by any government of whatever hue.
Royal Mail has thrown off buckets of cash since privatisation (in round terms, something like 60% of borrowings have been used to pay dividends), which appears inconsistent with your suggestion that it was somehow a basket case. It is inconsistent with the facts in evidence. The taxpayer would be far better off had RM not been privatised IMHO.
Hill92 said:
The pension situation is more complex than just assuming the net pension liability at the time of privatisation. Successive governments contributed to the net liability over the years: from swapping the pension assets for notional IOUs in the 1970s to 1990s tax rules that limited pension assets to 110% of pension liabilities while simultaneously using Royal Mail as a cash cow for Treasury coffers.
That last point also contributed to the failure invest in modernisation in public ownership. The Treasury set ever increasing negative External Financing Limits which required Royal Mail to hand over cash regardless of business needs or even profits to support the payments. Even as the letter business continued to decline there was still government interference in attempts to modernise the business. It's one of those businesses that really cannot afford to be managed by whatever wins/loses the most votes for a government minister.
As regards Government direction, the approach taken with POL - holding shares through an executive agency - seems the most sensible, and doubtless would have been pursued had RM remained in public ownership. In such a structure, RM could have accessed private borrowing had it been necessary.That last point also contributed to the failure invest in modernisation in public ownership. The Treasury set ever increasing negative External Financing Limits which required Royal Mail to hand over cash regardless of business needs or even profits to support the payments. Even as the letter business continued to decline there was still government interference in attempts to modernise the business. It's one of those businesses that really cannot afford to be managed by whatever wins/loses the most votes for a government minister.
RM was capable of throwing off cash. You've mentioned the negative external financing limit. What is widely missed is that, in the run up to privatisation, Govt extracted a promise from RM's board to declare a £133m first-year dividend so the shares could be priced on a dividend yiield basis - of 8%! Govt routinely took money out of RM, and then lent it back - just like a PE firm! £1.3bn was agreed in 2010 for modernisation.
I'm not saying RM didn't need help, or that it had suffered under direct Govt control. I'm saying that immediate post-privatisation history shows that RM was capable of generating large amounts of cash *for shareholders* which could just as easily have been returned to Govt (or, better yet, retained in the business for investment purposes).
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