Private investors barred from Virgin Money flotation

Virgin Money

After months of speculation, Richard Branson's Virgin Money has finally confirmed it will float on the London Stock Exchange this month in a listing expected to value the bank at about £2 billion. Retail investors, however, have been excluded from the IPO and will have to wait until trading begins to get involved.

The bank expects to raise gross proceeds of £150 million, and will spend what's left after some hefty advisory fees on growing the business. It will also beef up its equity tier 1 capital ratios, be better able to hire and retain key staff, and give access to other fundraising options.

Of course, Virgin Money also owes the Treasury £50 million, a condition included as part of Virgin's acquisition of Northern Rock in late 2011. It agreed to pay the money in the event of a successful IPO before the end of 2016. The extra cash will take the total paid by Virgin for Northern Rock to £1.02 billion.

Branson's Virgin Financial Investments, funds managed by American investor Wilbur Ross, and a selection of small shareholders and staff will all sell down their stakes. Virgin employees will benefit, too - each will receive £1,000 of Virgin Money shares.

And while retail investors will not take part in the IPO, those who buy and hold after the float can at least look forward to a dividend in Virgin's first full financial year, promised to be 10-20% of after-tax profits.

The business has certainly done well this year. In the first half of 2014, Virgin Money made an underlying profit of £59.7 million compared with £53.4 million in the whole of 2013.

"Over the last three years we have transformed our business," said chief executive Jayne-Anne Gadhia. "We have expanded our product range, increased our customer numbers, grown our balance sheet and enhanced our profitability. Our decision to take the business public marks just how far the company has come."

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

The article was written for our sister website Interactive Investor

More about