Investors Spurn Sale of BP Stock; Underwriters May Pick Up Tab

LONDON — Investors spurned a $12-billion sale of British Petroleum stock Wednesday, turning Europe’s biggest privatization into a flop that may aggravate the crisis in financial markets.

When the offer closed undersubscribed, it appeared that only 200,000 people had applied for shares in the giant oil company, according to public relations consultants Dewe Rogerson, who acted with merchant bank N. M. Rothschild & Sons as the government’s advisers on the offering.

Before stock markets plunged last week in the sharpest drop ever, more than 6 million had said they were interested.

Underwriting banks committed to buy unsold shares have urged the government to call off the sale, but most financial and political analysts expect it to press ahead. The government has said that it will decide by late Thursday.

“It won’t be pulled. It’s too tied up with politics,” said Michael Unsworth, chief oil analyst at brokers Smith New Court.

Blow to Thatcher

Underwriters, or firms committed to buying unsold shares, have led the drive to halt the launch. The cost for the 116 underwriters from Europe, Japan, Canada and the United States could total more than 1 billion pounds ($1.7 billion).

Four U.S. financial houses--Shearson Lehman Bros.; Salomon Bros.; Goldman, Sachs and Co., and Morgan Stanley Group Inc.--stood to suffer the most, as they had not spread the risk as much as their British counterparts.

Economists fear that the huge losses underwriters face could add to financial problems posed by the stock market falls in Britain and the United States.

Analysts, most of whom doubt that the government will pull out, say that withdrawing the offer would be a blow to Conservative Prime Minister Margaret Thatcher and her drive to make Britons a nation of shareholders.

Her previous selloffs of firms, such as British Gas PLC and British Airways PLC, were heavily oversubscribed. The number of British stockholders has tripled since Thatcher took power in 1979 to more than 9 million people.

Postponing or canceling the issue would cost the government more than 4 billion pounds ($6.8 billion) in lost revenue, which it would then be forced to find elsewhere.

British Petroleum Co. PLC, one of the so-called Seven Sisters that controlled world oil before the rise of the Organization of Petroleum Exporting Countries, has suffered from the worldwide drop in share values.

Its shares traded Wednesday at about 2.46 pounds ($4.20), well below the 3.30-pound ($5.64) price on the remaining government BP stake of 31.5%.

Analysts also said that loss of the projected new capital was bound to hurt the expansion and development plans of BP, which employs 127,000 people in 70 countries.

The price drop means losses of 50 million pounds ($85.5 million) for private investors who committed themselves to buy before stock markets fell, analysts said.

They warned that finance firms were likely to avoid future big flotations and commit themselves only to underwrite small, conservatively priced issues.

Some said they believed that the Bank of England, the central bank, might soften the blow with credits to underwriters or arrangements to postpone initial payments to the government.