Return of public ownership: Debt-fuelled Royal Mail deal is a bail out waiting to happen, writes ALEX BRUMMER

Labour’s recent intervention in the affairs of Jingye-owned British Steel highlights significant concerns over industrial strategy. This move underscores the delicate balance between national interest, economic pragmatism and the role of government in safeguarding key industries like steel manufacturing, amid wider debates about foreign ownership of UK assets.

Emergency parliamentary debates should ideally be reserved for critical national emergencies, not crises potentially exacerbated by policies such as the rapid pursuit of net-zero emissions targets.

If steel ownership is deemed a matter of national importance, the question arises: should the same principle apply to other crucial infrastructure and services, such as Heathrow Airport, Thames Water, and Royal Mail?

In the United States, heightened sensitivities around national security have prompted the President to initiate an inquiry into pharmaceutical imports, invoking the Trade Expansion Act of 1962, which permits trade restrictions on goods vital to national security.

The public interest alone arguably provides sufficient justification for scrutinizing Chinese or any foreign control of essential British assets.

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Furthermore, there are broader implications to consider when key UK infrastructure is transferred to overseas entities. Decisions impacting British industry, jobs, and production in sectors like steel may be made remotely, potentially overlooking the ramifications for the United Kingdom.

Post-acquisition by private entities, transparency often diminishes. Thames Water, under successive international owners, faced accusations of resource depletion, resulting in environmental issues.

Operational disruptions, such as a sub-station fire, have exposed vulnerabilities at Heathrow Airport, also under foreign ownership. Meanwhile, the Business Secretary approved the takeover of International Distribution Services, parent company of Royal Mail, by Czech investor Daniel Kretinsky.

A recurring characteristic of these transactions is the prevalence of aggressive financial structuring. Many of these acquisitions are funded, or are proposed to be funded, through substantial borrowing.

Geopolitical trade tensions have introduced instability into debt markets. Increased US long-term bond yields have dampened the appetite for high-yield lending, affecting the $1.4 trillion buyout market.

The financial climate casts doubt on the Royal Mail acquisition. Reports indicate a significant decline in profits at Kretinsky’s energy conglomerate EPH, from £4.5 billion in 2023 to £1.4 billion this year.

The proposed Royal Mail deal, valued at £3.6 billion, relies on £3 billion in high-interest debt, adding to an existing £2 billion debt burden.

Whether Kretinsky can manage this debt load while fulfilling commitments to job security and investment, given the shifting economic landscape, remains highly questionable.

Prudent financial observers should recognize these risks before potential adverse outcomes materialize.

It remains to be seen how long it will be before Kretinsky seeks financial assistance from the government.

Historically, Labour administrations have shown reluctance towards nationalization. However, the current government, facing strained business relations and questionable judgment, risks being drawn into a new wave of public bailouts or even nationalisation.

Corporate Restructuring and Takeovers

Early in my career, I was involved in a management information project for the CEO of De La Rue, then a diversified conglomerate. Beyond banknote and stamp printing, their portfolio included brick manufacturing, boiler production, and security transport services.

Over time, De La Rue narrowed its focus to currency printing, which paradoxically reduced its overall stability. The company faced persistent pressure from activist investors, leading to continuous asset disposals.

Recently, De La Rue divested its authentication division to Crane NXT for £300 million to alleviate debt. Ultimately, a takeover became inevitable.

Facing pressure from veteran financier Edi Truell, who made a £245 million cash offer, De La Rue has agreed to a deal with American buyout firm Atlas. This agreement promises capital to accelerate De La Rue’s transition to polymer currency production.

The 19 percent premium over the pre-bid share price in December 2024 offers an exit strategy for activist investor Crystal Amber, a long-term proponent of strategic change.

The delisting of a venerable British public company from the London Stock Exchange is a concerning development.

It also raises questions about whether the company’s leadership could have mounted a more robust defense against takeover.

Concerns over Investment Advice

Neil Woodford’s latest venture demonstrates remarkable audacity.

The fund manager, whose actions led to significant financial losses for 300,000 investors six years ago, intends to launch a stock-picking advisory service promoting independent, long-term investment strategies.

Regulatory bodies should swiftly intervene to prevent potential harm to consumers.

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