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Wary Investors Shun Britain's Sale of BP; May Worsen Crisis

October 28, 1987|From Reuters

LONDON — Investors spurned a $12-billion sale of British Petroleum stock today, turning Europe's biggest privatization into a flop that may aggravate the crisis in financial markets.

When the offer closed undersubscribed, it appeared that only 200,000 people had applied for shares in the giant oil company. Before stock markets plunged last week in the sharpest drop since the 1929 crash, more than 6 million had said they were interested.

Underwriting banks committed to buy unsold shares have urged the Thatcher government to call off the sale, but most financial and political analysts expect it to press ahead. The government has said it will decide by late Thursday.

"It won't be pulled. It's too tied up with politics," said Michael Unsworth, chief oil analyst at brokers Smith New Court.

Underwriters, or firms committed to buying unsold shares, have led the drive to halt the launch. The cost for the 116 underwriters from Europe, Japan, Canada and the United States could total more than $1.7 billion.

U.S. Firms to Suffer

Four U.S. financial houses--Shearson Lehman Brothers Inc., Salomon Brothers Inc., Goldman Sachs & Co. and Morgan Stanley Group Inc.--stood to suffer the most because they had not spread the risk as much as their British counterparts.

Economists fear the huge losses underwriters face could add to financial problems posed by the stock market collapses in Britain and the United States.

Analysts, most of whom doubt the government will pull out, say withdrawing the offer would be a blow to Conservative Prime Minister Margaret Thatcher and her drive to make Britons a nation of shareholders.

Her previous sell-offs of firms such as British Gas PLC and British Airways PLC were heavily oversubscribed. The number of British stock owners has tripled since she took power in 1979 to more than 9 million people.

$6.8 Billion at Stake

Postponing or canceling the issue would cost the government more than $6.8 billion in lost revenue, which it would then be forced to find elsewhere.

British Petroleum Co. PLC, one of the so-called Seven Sisters which controlled world oil before the rise of the Organization of Petroleum Exporting Countries, has suffered from the worldwide drop in share values.

Its shares traded today at around $4.20, well below the $5.64 price on the remaining government stake of 31.5% of BP.

Analysts also said that loss of the projected new capital was bound to hurt the expansion and development plans of BP, which employs 127,000 people in 70 countries.

A figure of only about 200,000 applications for the offer was given by public relations consultants Dewe Rogerson, who acted with merchant bank N. M. Rothschild & Sons as the government's advisers on the offering.

The price drop means losses of $85.5 million for private investors who committed themselves to buy before stock markets fell, analysts said.

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