LONDON (Reuters) - Britain is postponing a planned sale of shares in bailed-out Lloyds Banking Group (LLOY.L) due to turmoil in global financial markets, disappointing thousands of small investors hoping to benefit from a discounted sell-off.
“I want to create a share owning democracy. It’s also my responsibility to ensure economic responsibility, so with these turbulent financial markets now is not the right time to have that sale,” finance minister George Osborne said on Thursday.
“We will sell Lloyds to the British people, but we will do so when the time is right.”
Britain had planned to further reduce its stake in the bank via a sale to major investors in the first few months of 2016, before sealing its exit with a discounted offer to the public.
But falling commodity prices and a faltering Chinese economy have sparked huge falls in global stock markets in 2016, sending Lloyds shares down 19 percent to 63.7 pence, well below the government’s 73.6 pence break-even price.
Lloyds shares were to be offered to retail investors at a 5 percent discount to the market price, with a bonus share for every 10 shares held by the investors for more than a year.
“If Osborne were to have gone ahead with the sale to retail investors ... this would have produced an effective price of sub 60 pence,” said Investec analyst Ian Gordon.
“That would be politically and economically impossible to justify. So I think that this (decision) is perfectly sensible.”
Lloyds said the timing of any share sale was a matter for the government.
The finance ministry said in October it would sell at least 2 billion pounds ($2.9 billion) of Lloyds shares to the public in spring 2016.
The sale was set to be one of the largest for a state-backed company since the 1980s when Margaret Thatcher’s Conservative government sold stakes in British Telecom and British Gas.
Hargreaves Lansdown analyst Laith Khalaf said the news would disappoint “thousands of investors who had queued up for a chunk of Lloyds”, which is forecast to pay a dividend yield in excess of 7 percent in 2017.
The bank was rescued with a 20.5 billion pound taxpayer-funded bailout during the 2007-09 financial crisis, leaving the state holding 43 percent. To date, the government has recouped around 16 billion pounds.
“We should remember that significant progress has been made here ... but market events have caught up with the stock,” Matthew Beesley, head of global equities at Henderson told Reuters, citing broader market concerns about further mis-selling charges for banks and a poor outlook for interest rate margins.
News of the mothballed sale came as new data showed signs of weakness in Britain’s economy towards the end of 2015. Economic growth slowed to 2.2 percent last year from 2.9 percent in 2014.
($1 = 0.6994 pounds)
Additional reporting by Jane Merriman; Writing by Ana Nicolaci da Costa, Editing by David Milliken and Mark Potter