Britoil: Privatisation

HL Deb 10 November 1982 vol 436 cc247-54

3.50 p.m.

The Minister of State, Scottish Office (The Earl of Mansfield)

My Lords, with the leave of the House, I will repeat a Statement being made in another place by my right honourable friend the Secretary of State for Energy. The Statement is as follows:

"With permission, Mr. Speaker, I will make a Statement about the privatisation of Britoil.

"The offer for sale of 51 per cent. of the shares in Britoil will be by tender, with special arrangements for small investors to apply for shares at the striking price without having to bid a specific price in advance.

"The shares have today been underwritten at a minimum tender price of 215p per share. Payment for the shares will be in two instalments, a first instalment of £1 a share on application with the balance due next April.

"The prospectus and application form will be available in the Library from today and published in newspapers on Friday. Copies of the prospectus in book form will be widely available through main branches of the clearing banks, Trustee Savings Banks and main post offices from next Monday, 15th November. The application list for the shares now offered for sale will open at 10 a.m. on Friday, 19th November and may be closed at any time thereafter.

"In order to encourage small investors to retain a long-term interest in the company, they will, subject to the conditions set out in the prospectus, receive one free share, known as the small shareholder bonus, for every 10 still held in three years' time.

"As I told the House a fortnight ago, the privatisation of Britoil will in no way affect the system of participation agreements, which will remain in place, under 100 per cent. Government control, as a means of safeguarding our national security of supply. But what it will do is enable the people of Britain to take a direct personal stake in the North Sea. It will create an independent British oil company free to seize the opportunity open to it. And it will substantially reduce the size of the public sector in an area where state ownership has no rational justification whatsoever".

My Lords, that concludes the Statement.

Lord Bishopston

My Lords, the House will be grateful to the Minister for passing to us the Statement read in another place. As the House will know after the long debates on the Oil and Gas (Enterprise) Bill, which is now an Act of Parliament, this Statement is a progress report by the Minister on the sale of a great national asset which has produced vast amounts of oil for the nation, which has been an industry of great profitability and which has substantially contributed to the Treasury through taxation and in other ways; so we are not dealing with some industry which has failed the nation and run into debt. It follows that such an important Statement requires detailed and careful probing; and that the issue of more details later does not help the House at the present time.

As I anticipated in my comments on the Statement made in your Lordships' House a few days ago, the Minister is really determined to sell these assets now regardless of the best timing for the public interest. It is we, the public, who are the owners of this asset and we should ensure that we get the best price. I should like to ask the Minister several questions. First, what heed has he paid to the PAC report, following the disgraceful sale, I may say, of the Amersham International shares, and especially their views on underwriting? What, incidentally, will be the cost of the underwriting? What will be paid to the stockbrokers and to the others concerned with the flotation of this sale? This can be a considerable sum of money which the public will have to pay to put these assets on the market. We have a right to be told.

What valuation do the Government place on this asset? There have been estimates in the press for a long time, with valuations going from £1 billion upwards and downwards. There have been lots of leaks in the press about all this—oil leaks and others—and the valuation has gone from £1 billion up and down. Is it likely that the valuation, or the amount that we shall get, will be only one-half of that amount? There is a lot of speculation that that may be the case: that the sale is being made with a loss to the public. What sums of money have been paid, or are being paid, to dress up this asset, to make it more attractive to those who want to buy and to make it more profitable for the private investors?

The Minister said on 27th October that the sale would be by fixed-price offer or by tender, but he said that in either case there will be part-paid shares. How does he intend that these shares shall be based on a widespread take-up by small investors? He talks about more people having a stake in this great enterprise, but how many does he envisage buying shares—5,000, 10,000, 50,000 or 100,000? How many will be able to compete on competitive tender? How does a small man or woman, or the small investor, compete with the big institutions and others?

There are other questions which deserve information. The Minister spoke about the sale of the part-time shares going ahead, but what happens if the price rises before the second instalment is paid? Will the Minister ensure that a full balance sheet is provided? We know that under (I think) Section 32 of the Act the Minister can override any of these corporations, the Gas Corporation or the British Oil Corporation and he does not need to give all the information which would have to be given to anyone else floating shares such as these. A full balance sheet must be provided. How many shares are on offer? What happens to shares which are unsold? Will they be retained by the public sector? What safeguards are there to ensure that shares do not go outside British control? Your Lordships will remember the amendment that we put down to try to stop them from going into foreign hands and influence, but that amendment was defeated. We want to ensure that this asset is still under British control. It would be useful to know—and I am sure that investors will want to know—about the dividend prospects, not only in the coming year but beyond.

There are so many aspects to be answered. There will be no use in the Minister saying in reply, if I may anticipate it, that all this will be made known if we read the papers in a couple of days' time. The House has a right to know now. As I said on the last Statement, whether we agree with the sale or not we all have a duty to probe to ensure that this sale is the best which can be effected in the circumstances. I may say in a final word that those on the other side of the House who back the Government in the sale of this great enterprise have no less a duty—indeed, they have a much greater duty—than others in this House to see that the way in which it is done is in the best interests of everyone concerned.

3.59 p.m.

Lord Rochester

My Lords, from these Benches, I should like to join in thanking the noble Earl for having repeated this Statement. We cannot rid ourselves of the suspicion that what, on the Government's own showing, should be a commercial proposition, is prompted as to its timing, at least in part, by political considerations. Does this not invite a Government of a different political complexion to resume control over this great national asset? Indeed, only a few minutes ago, did we not hear something from the noble Lord, Lord Scanlon, to that effect? Would this not then prove to be a further instance of that continual swing from one industrial policy to another which has done so much damage to British industry over the last 30 years?

We welcome in principle the intention of the Government to make special arrangements for small investors in relation both to the application for and the retention of shares. Following Lord Bishopston's speech, may I press the Minister a little more on this aspect? If the large institutions put in large applications, will the allocation of shares be such as to give relatively more favourable treatment to the small investors?

Finally, may I ask whether it is the intention that there should be any provision under the new institutional arrangements contemplated for employees of Britoil themselves to acquire shares on favourable terms other than those that will be available for small investors generally?

4.1 p.m.

The Earl of Mansfield

My Lords, I thank both noble lords for their somewhat muted welcome to this Statement. If I may reply to the noble Lord, Lord Bishopston, the first matter upon which he complained was the timing of the sale. I remind him that in the year which has passed, and the two weeks or so since my right honourable friend announced his plans in another place, the Financial Times actuaries' oil share index has risen by somewhat more than 17 per cent. It would seem to me that this is as good a moment as any to make the flotation and complete the sale.

Then the noble Lord asked what has been done with the hindsight knowledge of the affair of Amersham International. In the first place, I reject his contention that in fact there was anything which was untoward about Amersham International. The return on the investment was very good indeed. But, nevertheless, the way in which these particular shares are going to be sold—that is to say, by tender rather than by fixed price—will make for a really true market valuation of the assets of the company.

The noble Lord asked about the underwriting costs. There will be a commission of 1.55 per cent. which will be paid—and I may say that this is set out in detail in the prospectus. The noble Lord also asked: what is being paid to the stockbrokers? One must be careful about this matter. Various merchant banks have given advice. They will be paid an advisory fee. My right honourable friend has obtained totally independent advice from a firm of stockbrokers as to the pricing of the shares, and they too will be paid a fee.

I was than asked about the valuation of the assets. I assume that the noble Lord means a valuation of the shares and not a net asset valuation. There are a number of ways in which one can make a series of assumptions and on those assumptions build some form of valuation. My right honourable friend's department has certainly done its sums, and the results of those sums are reflected in the minimum tender price of 215p per share.

The next matter that the noble Lord asked about was, to quote his own elegant phrase, "What is being paid to dress up this asset?" The answer is, nothing. However, the full financial arrangements in respect of this company are in the prospectus and I cannot possibly go into them at this stage. The noble Lord asked how many small investors there will be and how they can compete in effect with the large institutions. If I may say so in as kindly a way as I can, the noble Lord has the wrong end of the stick. This is a sale by tender, and it will be for all investors other than the small investors to tender a price. But those who tender—in other words, those who put in an application—for up to 2,000 shares will not have to put a price at all. They merely put in an application. Once the striking price has been arrived at then they will be entitled to buy the shares at the striking price. So it is impossible at this stage to estimate how many small investors are going to apply for shares; how many shares they will apply for; what the striking price will be and therefore what the small shareholders, so to speak, will be at the end of the day.

Then the noble Lord asked what will happen to any shares that are unsold. They will be taken up by the underwriters who have contracted to do just that and are, as I have said, being paid a commission in respect of their underwriting duties. The remainder—the 49 per cent.—of the shareholding (which may have been in the back of the noble Lord's mind) will be held by the Treasury Solicitor. I think that deals with the noble Lord's points.

The noble Lord, Lord Rochester, asked about the allocation of shares to small investors. I very much hope that what I have said to the noble Lord, Lord Bishopston, will answer his questions too. He also asked about a possible share scheme for the employees of Britoil. I do not have the answer to that question at this moment. If I get it in time, I will tell him; otherwise I will write to him.

4.7 p.m.

Lord Taylor of Gryfe

My Lords, I, too, should like to thank the noble Earl the Minister for his Statement on this important subject, and congratulate him and the Government, if not on the timing of the issue, at least on adopting the tender technique in this case. He may be interested to observe that today's price of Amersham is 280p against an issue price of 140p/142p. I should like the noble Earl to give me his comment on the question of the timing of the issue. While he has quoted a 17 per cent. appreciation in the oil market in the past few weeks, is he aware that the Financial Times oil share index, from which he quoted, has fallen in two years from 1,065 to 680 and that the Economist offered advice last week on this subject, and headed the article: "Postpone Britoil Sale because of the market conditions"? Similarly, the Sunday Times quoted: "Britoil—a doctrinal sale".

In these circumstances, would he not agree that this is perhaps the wrong time to make this issue? May I also ask him this: on the assumption that a minimum price of 215p per share is realised, what is the value of the asset that is now being disposed of? How much do the Government expect to realise on the basis of a minimum share of 215p, keeping in mind that reputable stockbrokers in the City last week estimated the total value of this asset at £2.5 billion?

May I also ask him whether there is a provision in the prospectus for small shareholders to retain their sharholding and get a free issue on a share and how does this affect the dilution of the Government's shareholding if that is put into effect? Presumably one is talking now about a 49 per cent. shareholding whereas there is possible dilution involved. I also wonder whether, in order to avoid frivolous applications and over-applications for shares, the Government have looked at the possibility of cashing the cheques on application at least for a period in order to avoid the kind of over-subscription that has taken place recently on other issues?

The Earl of Mansfield

My Lords, so far as the timing of the issue is concerned—I, too, read the financial pages when I have a moment—I believe that the underwritten price of the the shares in Britoil is fair against the background of today's market conditions. Of course, it will shortly be tested in the market. I do not think there is any reason to believe that we could have obtained a better price by delaying the sale. So far as the valuation is concerned, the minimum tender price is 215p per share and the total shares are valued at £1.075 billion.

Lord Taylor of Gryfe

My Lords, is that the value of the share issue or is the value of Britoil?

The Earl of Mansfield

My Lords, that is the value of the share issue. If the noble Lord was referring, as I think he was to the net asset value—I see him nodding—he will know very well that is not some sort of objective measure which can be translated directly into a market price for the shares. It is a calculation which has to be made on more or less arbitrary assumptions about future oil prices. exchange rates and oil production rates from fields, some of which have not yet even been developed. So it may be of value in making comparisons as between one company and another, but I do not think it is an indication of a fair market price.

The noble Lord asked what would be the effect of the issue of shares to small shareholders who retain their shares for the prescribed period. As I understand the position—and if I am wrong I will write hastily to the noble Lord—this will in effect be a minor scrip issue: no more and no less than that. The noble Lord also asked about what I might call "anti-stagging" measures. We do reserve the right to cash cheques on receipt and the right is also reserved to refuse multiple applications. I understand that the application form has been printed in blue ink to make photocopies readily identifiable. I hope therefore that the noble Lord is to some extent reassured.

Lord Kaldor

My Lords, may I ask one point—if the noble Earl has already explained this, it has escaped my understanding. What is the meaning of "tendering" in this connection? The normal commercial meaning is that you tender for the whole lot and the thing goes to the highest bidder: in other words, you tender for all the shares at the highest price per share. Normally we would expect there to be various consortia of financial interests who would tender against each other. Is that the procedure which is to be adopted?—because in that case the ownership of the shares is bound to remain within a very narrow circle of financiers or others who participate in the consortia. Perhaps I have misunderstood what the noble Earl has meant by "tendering".

The Earl of Mansfield

My Lords, the meaning of "tender" is the normal meaning of the English word, and the actual mechanics of the operation are in the back of the prospectus. I have had it in my own hands for only a comparatively short time but, as I understand it, it is perfectly normal.

Lord Kaldor

My Lords, you must tender for the whole lot in one go?

The Earl of Mansfield

My Lords, one puts in one's application with the tendered price.

Lord Oram

My Lords, among the questions asked by my noble friend, Lord Bishopston, was one which referred to how much the stockbrokers would be paid. In reply to that question, the noble Earl merely said that certain merchant bankers will be paid a fee for advice and that a firm of stockbrokers will also be paid a fee. Does the noble Earl know what that fee is and, if so, should he not give it to the House?

The Earl of Mansfield

My Lords, I do not know and I am not sure that it would be proper for me to give it to the House even if I did—the reason being that it is a fee which is incurred by the Department of Energy and nothing to do with Britoil in the preparation of this flotation.

Lord Diamond

My Lords, does not the noble Earl owe it to the House to make clear one point on which I am quite confused, and I think that the noble Lord, Lord Kaldor, is still confused, with many others who will feel the same? I am not trying to catch out the noble Earl on an abstruse point. The simple question is: will the procedure adopted be likely to result in a large number of small shareholders or a small number of large shareholders?

The Earl of Mansfield

My Lords, it is quite impossible to answer that question now. The number of small shareholders will only be realised when the striking price is declared. Therefore, the number and extent of their shareholding, so far as small shareholders are concerned, can be ascertained. I hope therefore that the noble Lord will see that one cannot quantify it.

Lord Leatherland

My Lords, would the noble Earl say that if I were a very wealthy German capitalist it would be possible for me, along with other very wealthy German capitalists, to secure a holding of a very large number of these shares?

The Earl of Mansfield

My Lords, my right honorable friend reserves to himself the right to refuse any application, so whether the buyer was a very rich German capitalist or a very rich German Marxist makes no difference.

Lord Kaldor

My Lords, could the noble Lord tell us how the striking price is arrived at? If the Minister responsible has examined all the applications from every point of view, including the nationality of the applicant and all other things, I cannot see any simple procedure by which—

Lord Boyd-Carpenter

Question!

Lord Kaldor

My Lords, my question is how the striking price is arrived at.

The Earl of Mansfield

My Lords, the striking price will be the minimum price which has been tendered in order to ensure that the applicant receives his shares.

Lord Donaldson of Kingsbridge

My Lords, if, as a small investor wanting 1,000 shares, I put in a bid and the striking price is then agreed by other people's investments, what proportion of my 1,000 shares am I likely to get? Would I get 1,000 or 10 per cent. of something else, and, if so, of what? I really have never heard such a confused Statement on anything for a very long time in this House.

The Earl of Mansfield

My Lords, I really do not think there is need for any confusion. The applications are made and the tenders are received. The Government then have to work out the striking price and do a sum which will ensure that the number of shares on offer reflects those applicants who are above the striking price and the number of small shareholders, who, as I have said, make their application without entering any price at all. In that way, the amount of shares which will be awarded, if that is the correct word, to these small shareholders will be ascertained.

Lord Boardman

My Lords, if as my noble friend said, a copy of the prospectus was to be placed in the Library today, is it not the case that many of these highly technical problems could best be answered by looking at the prospectus itself?

The Earl of Mansfield

My Lords, I am most grateful to my noble friend. I think that a perusal of the prospectus in the Library, or as from Friday in the newspapers, or as from next Monday in the main branches of the clearing banks, the Trustee Savings Banks and the main post offices, probably would be fruitful.

Lord Bishopston

My Lords, may I finally ask the Minister this question in view of the uneasiness which is obvious in the House? Despite the assurances of his noble friend Lord Boardman, the House really is not getting the information which it ought to have. Saying that noble Lords can read about it in the press, in the Library or elsewhere is not good enough. Can there be a debate on this matter, or can there be a further Statement by the Minister at the earliest opportunity?

The Earl of Mansfield

My Lords, it certainly would not be appropriate to have a debate upon the prospectus of a company which is being issued in the manner in which this one is. If the noble Lord wishes to raise the matter, then I am sure that he will do so through the usual channels.

Lord Kaldor

My Lords, may I—

Lord Denham

My Lords, we have already spent 30 minutes on this Statement. Of course, noble Lords are entitled to ask my noble friend any brief questions for elucidation that may arise, but we have had a very great number of questions. I am, of course, in the hands of the House, but perhaps your Lordships may generally feel that we should carry on with the debate.

Lord Kaldor

My Lords, may I finish? Would it not save a lot of time if the Minister—

Several noble Lords

Order!

Lord Denham

My Lords, it is usual, when the House has expressed its view by sound when such a suggestion is made, for noble Lords to accept the advice. Of course, if I am wrong I shall apologise, but I think that we ought to carry on.