Royal Mail tests market for £1.5bn loan ahead of IPO

Sources said Rothschild is advising Royal Mail on the financing. Picture: Getty

Sources said Rothschild is advising Royal Mail on the financing. Picture: Getty

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BANKS have been asked to gauge market appetite for a £1.5 billion syndicated loan to back the planned privatisation of Royal Mail, according to banking industry sources.

A group of about ten banks are looking at the financing, which is expected to consist of a revolving credit facility and a term loan, and will provide working capital to the firm before its initial public offering (IPO), two senior bankers said.

Sources said Rothschild is advising Royal Mail on the financing, which is at an early stage, and one of the bankers said the timetable of the deal will be driven by the privatisation.

In December, Royal Mail appointed Bank of America Merrill Lynch and Goldman Sachs to work alongside Barclays as its financial advisers. UBS has been advising the government. Royal Mail declined to comment.

The group employs 150,000 people and has annual sales of £9.5bn. The flotation, which is expected to value the state-owned business at between £2bn and £3bn, could get underway as early as September.

Figures earlier this week showed the world’s oldest postal service delivered an operating profit before exceptional items of £440 million in the year to March, more than double the previous year’s tally of £152m.

Turnover from parcels grew 13 per cent and now accounts for almost half of the group’s revenues, driven by the continued growth in online retail, while letter revenues rose 3 per cent.

Business Secretary Vince Cable has insisted there is “no alternative” to the privatisation of the firm, which he said still faces a “fundamental threat” from e-mail. At least 10 per cent of the shares have been earmarked for the group’s workforce, although it is not known whether they will get them for free.

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