LONDON — The $12 billion in new shares of British Petroleum, whose flotation threatened to swamp a jittery stock market, traded briskly today as the government's plan to help stabilize the market with a floor price apparently paid off.
The price--3.30 pounds per share, or $5.64--was set before the October crash in the stock market pushed the market price of existing BP stock well below that level.
This left the investment banks, which were committed to buy the shares from the government, with few buyers. Analysts feared this would force the financial houses to dump the shares on the open market to salvage what they could from the disaster.
But in announcing Thursday night that the sale would go ahead, the British government also set up a safety net for the market, offering to act as a buyer of last resort if the price fell too low.
The first installment of the shares was to be sold at 1.20 pounds ($2.04), but due to the decline in the London market, they were worth only about 68 pence ($1.16) at Thursday's close. The other two installment payments to purchase the shares are to be made in 1988 and 1989.
The government said the Bank of England would buy any first-installment shares at 70 pence ($1.20) over the next one to two months, effectively putting a floor under the market price. But when trading in the new shares began in the afternoon, to coincide with the opening of the New York market, they were quoted at 86 pence ($1.46), well above the floor price.
Volume in the new shares was massive, with more than 100 million shares changing hands in the first 30 minutes.
The 7.2 billion pounds ($12 billion) of stock represent the final 31.5% of BP still owned by the government as well as some new stock being issued by the company.
Analysts had predicted that the presence of a floor price would help bolster the market and could make any government buying unnecessary.
"Now that the uncertainly over BP is over, the market may well be steadier for a while," one dealer said.
Analysts, speaking an hour after the shares began trading, said the last-minute decision appeared to have calmed the stock market.
"Buying and selling is lively and the value seems to be holding up as well as could be expected after the recent traumas. No sign of panic," one senior market analyst said.
"We're all breathing a sigh of relief. At least the scale of the flop has been limited," said one share analyst.
Existing BP shares closed in London on Thursday at 2.63 pounds ($4.52) against 3.51 pounds ($6.03) on Oct. 15, when the offer price was set.
The brisk demand should help cut the losses of underwriters, the U.S., European, Canadian and Japanese financial houses that, in effect, purchased the shares from the government and would be left with them if enough private investors cannot be found.
The initial stock offering had closed heavily undersubscribed. Only 270,234 instead of an expected 6 billion investors applied for shares, asking for 70.7 million of the offered 2.19 billion, according to official figures released Friday.
Withdrawing the issue could have tarnished the reputation of the City, London's financial district, analysts say.
"It was the only sensible move to make," said one stock analyst. "If the government had postponed the deal, three years of Treasury operations would have gone down the drain and City confidence would have been shaken."
Britain's finance minister, Chancellor of the Exchequer Nigel Lawson, who announced the decision to Parliament on Thursday night, said he was confident that he had chosen correctly to proceed with the sale and offer the support package.
"The interesting lesson is that the City of London proved to be a more secure and reliable financial center than any other in the world. It took its losses well," he said.
But the opposition Labor Party said the government was bailing out rich bankers, who, though they stand to lose up to 1.1 billion pounds ($1.8 billion) on the sale, have made huge profits on earlier selloffs, such as British Gas PLC, British Airways PLC and British Telecommunications PLC.
"I don't see the deal as a lifeboat for the finance houses because I just don't believe they will be offloading many shares," said one analyst.
Another said the guarantee had given investors the confidence that "the worst couldn't happen."