Huge interest in the Telecom Eireann shares has led the public to apply to buy three times more shares than will be available to them. With strong demand also coming from major financial institutions, the indications are that the share price may be set slightly higher than the market had expected, at about £3.
The final figure and the allocation to the different groups of shareholders will be announced at 3 p.m. today.
There was strong debate between the Government and its advisers on pricing and allocations yesterday, with the Minister for Public Enterprise, Ms O'Rourke, favouring a price which would leave gains to investors on the first day.
The Department of Finance - and at least one of the big investments banks advising the Government - are believed to have favoured a higher price and the final decision will represent a compromise between the two.
Some 565,000 people are now understood to have applied to buy Telecom shares. The average amount applied for is about £8,000, which means that £4.5 billion worth of shares have been applied for, though just around £1.5 billion will be made available to those people. The strong demand means that those who have applied for large amounts will get only a fraction of what they applied for.
Most of those who have applied for shares were among the almost 1.2 million who pre-registered for the flotation. Those who pre-registered and applied for £100,000, for example, are expected to receive fewer than £20,000 worth of shares, possibly about £17,000 to £18,000.
In contrast, smaller investors - those who applied for £3,000 to £5,000 - will get all or most of what they applied for. Those who applied for smaller amounts - the lowest amount which could be applied for was £250 - will get the full allocation they sought.
A smaller number of people who did not pre-register have also applied for shares. They will receive a lower allocation of shares than those who pre-registered.
The major financial institutions have also indicated a very strong interest. Sources suggested they may have been willing to buy more than 10 times the amount of shares being made available to them. This is understood to have led one of the advisers to the Government, US merchant bank Merrill Lynch, to advise that a high share price of substantially over £3 could be struck.
AIB Capital Markets, on the other hand, is believed to have taken a more cautious view, advising a share price closer to the middle of the £2.95 range.
Last night it appeared that the strong demand may lead to the price being set slightly above the middle of the range indicated by the Government. The mid-price of the indicated range would be £2.95 and the final price set is now thought likely to be between this and £3.10.
The final decision and the allocation of shares to different investors will be signed off this morning by a Cabinet sub-committee including the Tanaiste, Ms Harney, Ms O'Rourke and the Minister for Finance, Mr McCreevy.
For the Government, the setting of the price involved a delicate balance. On the one hand, it wanted to set a price which would leave gains for the public in early trading. However it does not want to leave itself accused of selling off Telecom too cheaply. Ideally, the Government and its advisers would like to see the shares rise by 10 to 15 per cent in the early days of trading. A higher increase - of 20 per cent or more - would be likely to lead to criticism that the price was set too low.
The price and the allocation of shares will be announced this afternoon by Ms O'Rourke. The shares will then begin what is known as conditional trading on the Dublin, London and New York stock exchanges tomorrow.
While the major financial institutions will be able to buy and sell shares on the market immediately, most private investors will only be able to trade when they receive their share certificates or nominee account statements in the second half of next week.
