U.K. Government Enters Trading Plan to Reduce NatWest Stake

(Bloomberg) -- The U.K. government will offload more of its shareholding in NatWest Group Plc over the next year as it looks to accelerate the sale of a stake it’s held since the financial crisis.

U.K. Government Investments Ltd., the body that oversees state holdings, said sales could start as early as Aug. 12 and end no later than Aug. 11, 2022, according to a statement Thursday. No more than 15% of the aggregate total trading volume in NatWest will be sold over the duration of the pre-arranged trading plan.

The shares won’t be sold below a price that the government sees as “fair value and delivers value for money for the taxpayer throughout the term of the trading plan,” according to the statement. The Treasury will continue to keep other disposal options open, including directed buybacks and accelerated bookbuilds.

Shares in NatWest fell as much as 2.8% before recovering in early trading Thursday. The bank declined to comment on the plan, which could mark an end to more than a decade of NatWest being majority owned by the government, though the U.K. would still remain by far the largest shareholder.

‘Drip’ Process

This “drip” sale process could allow NatWest to use its existing 10% share buyback authorization to purchase shares in the open market, which previously would have effectively increased the Treasury’s shareholding, Jefferies analyst Joseph Dickerson said in a note.

The U.K government is currently NatWest’s biggest shareholder with a 54.7% stake, more than a decade after it rescued what was then Royal Bank of Scotland in a 45.5 billion-pound ($62 billion) bailout. The Conservative government has repeatedly pledged to cut the holding, but the process has been stalled as Brexit dominated the British political scene and the lender’s market value languished at about half the amount of the bailout.

NatWest shares are up about 19% so far this year, after a 30% drop in 2020. The government is likely to face a hefty loss with the share price hovering around 200 pence. It has previously indicated its break-even price on the sums injected into the bank is 407 pence.

What Bloomberg Intelligence Says:

The U.K. government’s plan to sell down more of its 54.7% stake in NatWest Group over 12 months from Aug. 12 is positive, given the desire to release the lender from state ownership, but will likely cap share performance -- potentially around the 190 pence level, we believe. Details are limited, adding to uncertainty.

-- Jonathan Tyce, BI banking analyst

The sale is the latest move this year by the U.K. to reduce its stake. The Treasury said in May it was selling 580 million shares, representing approximately 5% of NatWest’s overall stock, through an accelerated bookbuild. It also sold 591 million shares back to the bank in March.

The trading plan will be managed by Morgan Stanley. Goldman Sachs Group Inc. is acting as privatization adviser to UKGI and Freshfields Bruckhaus Deringer LLP is acting as legal counsel.

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