Labour suspects false market in BT: Complaint to SIB about pressure from allocation policy to buy existing shares

THE LABOUR Party has attacked the sale of the Government's pounds 5bn remaining stake in BT, saying that pressure on investors from the Treasury and its adviser, SG Warburg, may have created a false market in existing shares before the issue.

Jim Cousins, Labour's spokesman on telecommunications, has complained to the Securities and Investments Board over the Government's allocation policy, which favoured institutions that were net buyers of already-traded BT shares in the run-up to the sale. He has demanded assurances from the SIB that daily trading information on existing shares was not passed to SG Warburg in the approach to the sale.

Yesterday, the newly traded shares jumped to a premium, of about 22p at one point, on the first instalment price of 150p paid by most private investors.

Small investors selling 600 shares could have made more than pounds 100 profit after the cost of dealing. But the early evidence from high street share shops run by banks, building societies and stockbrokers was that fewer individuals were selling than in the previous BT share sale in 1991.

At the weekend the Government warned that people selling before receiving share certificates - to be sent out by 28 July - risked selling shares they did not have. Some investors who used share shops may have an extra wait for their certificates.

About 187 million partly paid shares were bought and sold yesterday, with most of the interest being shown by UK institutions and investors in North America. The partly paid shares closed at 168p while the existing shares closed up 5p at 413.5p.

Many institutions were allocated far fewer shares than they wanted following the Government's decision to reserve 60 per cent of the total available for the UK public offer, leaving 40 per cent for institutions and larger private investors in the global offer. The international offer was almost six times subscribed, according to Warburg.

Almost half the shares in the international offer went to UK institutions and another 20 per cent to investors in the US. UK private investors who took part in the international offer by bidding in a retail tender received 14 per cent of the shares. In the UK public offer, the Government strongly favoured existing shareholders and employees. This meant that first-time investors applying through share shops received a maximum of 600 shares while those wanting more than 1,500 shares receive none.

For first-time investors other than employees who chose to apply through the Share Information Office rather than a share shop, the maximum allocation was 375 shares. However, Warburg said that 95 per cent of all those applying through the UK public offer would receive an allocation and more than half would get all the shares they sought.