RBS narrows price range for Direct Line shares

Thu, Oct 11, 2012, 01:00

ROYAL BANK of Scotland plans to price the stock market listing of its Direct Line insurance business at between 170 pence and 177.5p, in the lower half of its initial range, sources close to the transaction told Reuters.

The British bank, which is 82 per cent owned by the government following a 2008 bailout, had initially set a price range of between 160p and 195p, but this has been narrowed ahead of the offer closing yesterday.

RBS will sell at least 30 per cent of its shares, the sources said, meaning it will raise a minimum of £765 million. It had planned to sell between 25 per cent and 33 per cent in the initial public offering (IPO).

RBS is selling Britain’s biggest motor insurer to win European Union regulatory approval for the bailout it received during the financial crisis four years ago.

It has been under pressure to secure a good price for the business to reduce the British taxpayer’s loss, which stands at £22 billion on the £45 billion the government pumped into the bank to secure its future.

The group received a boost ahead of the flotation yesterday when the UK Court of Appeal ruled that a planned increase in court awards for personal injury will apply only to new claims that are made after April 1st, 2013, and not to older claims that are settled beyond that date.

Direct Line had warned in its IPO prospectus that as much as £45 million – an estimated 7 per cent – of pre-tax profits could be at risk if the legal battle went against it. At the bottom of the new range, Direct Line would have a total value of £2.55 billion.

Books for institutional orders closed at 4pm yesterday. Final pricing is due to be announced today, when trading will begin in what is still expected to be London’s biggest stock market listing of the year

Order books for retail investors have already closed and several brokerages reported strong demand.

“Since the weekend, we’ve seen the demand for Direct Line shares almost double,” said Tim Archer, head of operations at brokerage Redmayne-Bentley.

Under EU rules, RBS must sell the majority of its stake by the end of 2013 and all of its shares by the end of 2014.