Shares in Royal Mail continue to soar as they break £5 barrier

Shares in Royal Mail have risen 50% above the offer valuation a week ago to hit more than £5 as Business Secretary Vince Cable admitted he was told before the float that the price could soar.

The new high was reached as Mr Cable said bankers at Goldman Sachs, UBS and Lazards handling the sale persuaded ministers not to increase the offer price above 330p, fearing it could hit demand.

He said that earlier in the preparation for the sell-off during the summer, the threat of strikes by Royal Mail workers left some potential investors saying they were not willing to buy.

An initial price range of 260p to 330p was set, with the lower end factoring in possible escalating industrial relations problems that might push it down.

Mr Cable has dismissed the flotation fever , which saw the value of the company immediately soar by £1 billion when trading began last Friday, as "froth".

But shares climbed as high as 501.1p in today's session, valuing Royal Mail at £5 billion. The initial offer price of the company's shares at 330p had calculated it at £1.7 billion less.

Last week's surge saw the price climb steeply to 455p by the close, but the continuing rise showed that even at that value investors were keen.

Full trading in the shares, when members of the public who had bought them directly from the Government were able to cash in profits on the rise for the first time, began on Tuesday.

But the price continued to tick upwards as appetite remained unabated.

In a new letter to MP Adrian Bailey, chairman of the Commons Business committee, Mr Cable admitted that revising the price range upward was considered in a late stage of preparations for the sell-off "given the demand generated".

But he said this was not pursued based on assessment of the demand in the order book and where it would begin to taper off, "especially from informed potential long-term investors". Some of these expressed concern about an increase, he said.