Strong demand for £3.2bn shares in Lloyds sold by UK government

Big investors in Lloyds Banking Group cautioned that their appetite for more shares in the bank in the near term might be limited despite a faster than anticipated take-up of the stake sold by the British government on Monday night.

Bankers said demand for the £3.2 billion Lloyds shares sold by the government was strong, with the book covered 2.8 times. The book closed on Monday at 10pm, earlier than expected, with allocations finalised by 7am on Tuesday.

One top 10 investor in Lloyds said: “The deal was covered very quickly. We know that a lot of investors wanted some of this stock as bank shares are coming back in favour and the UK economy is looking much healthier.

"It is a vote of confidence in the British banks and the UK economy. Bank shares still look relatively cheap and a good buy when you look at price to book values and price earnings ratios."

National debt
Some 4.3 billion shares were placed at 75p each, reducing the government's stake from almost 39 per cent to 32.7 per cent. The government said the sale would reduce the national debt by £586 million.

Lloyds shares were trading 2.2 per cent down at 75.2p in early morning London trade.

BofA Merrill Lynch, JPMorgan Cazenove and UBS acted as joint bookrunners in the deal. About half of the Lloyds shares were distributed to UK investors, 30 per cent to US and 10 per cent to Asia.

Hedge funds
Bankers said preference was given to long-only funds – asset managers who buy and hold stocks – with both UK Financial Investments and Lloyds making clear they were less keen on hedge fund money. Two US hedge funds placed $1 billion orders but were both scaled back to between $250-$350 million.

Although some existing investors, such as Northern Cross, Norges, Lansdowne and Harris Associates, are understood to have increased their shareholdings, the vast bulk of the offering went to new investors. “There was a lot of new money that had been sitting on the sidelines,” said one banker.

Some investors said the nearly £9 billion that would be raised in the markets in the coming weeks through the Lloyds reprivatisation and the impending Barclays rights issue might be the limit of some fund managers’ appetite. – (Copyright The Financial Times Limited 2013)