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Volume 704: debated on Tuesday 14 October 2008

asked Her Majesty's Government:

What are their total net receipts from the multiple sales of shares in QinetiQ; how much was injected into the pension fund prior to privatisation; what was the value of the land bank included in the company's assets; and what restrictions there are on the company breaking itself up. [HL5412]

When QinetiQ was formed in July 2001, the company paid the Government for its assets with a combination of shares and debt obligations in the form of loan notes. The proceeds raised from the privatisation are therefore the total from the sale of the shares and the repayment of these debts. Including the sale of shares when the company was floated on the stock market in February 2006 the net proceeds raised (after deduction of all costs including the pension indemnity) were £576 million. A full breakdown of these proceeds including the split between share sales and debt repayments is contained in the National Audit Office report, the Privatisation of QinetiQ, which was published on 23 November 2007.

In addition, the Government sold their remaining 19 per cent stake in QinetiQ on 9 September 2008. Net of costs this raised a further £254 million. The total net proceeds to the taxpayer from all stages of the privatisations are £830 million.

When a minority stake in QinetiQ was sold to Carlyle in 2003, actuaries identified that there was a deficit of up to £75 million in the QinetiQ pension fund and Carlyle sought to have the value of the business reduced by this amount. After negotiations, the Government agreed to reduce the value of QinetiQ by £25 million and to provide QinetiQ with an indemnity capped at £45 million. The indemnity was payable if the deficit remained at the time of any subsequent flotation or sale of the business. As stated in the NAO's report, this arrangement gave the Government an opportunity to benefit if the value of the assets in QinetiQ's pension fund increased. However, by the time of flotation the deficit had increased and the full £45 million was paid into the pension fund. As a shareholder, the Government benefited from the resulting increase in the value of the company. In addition, the NAO calculated that by delaying the payment for three years its cost to the Government in real terms was reduced by £11 million.

When QinetiQ was formed in 2001, its assets included £342 million of land and buildings which were used to support its continuing business. Given the specialist nature and location of many of these assets, this valuation was assessed in QinetiQ's accounts as being around £113.8 million greater than the open market value of the assets if they were sold for other purposes. In addition, QinetiQ held surplus property, which was scheduled for disposal, which it had acquired from the Government at an open market value of £98.3 million. Sixty million pounds from the sale of these properties was subsequently paid directly to the Government as part of the company's debt repayments. As shareholder, the Government also benefited from the proceeds raised from further property sales. At the time of QinetiQ's creation, clawback arrangements were put in place to ensure that the taxpayer benefited from the value of any property sales above a specified threshold.

Although QinetiQ can dispose of parts of its business, there are protections in place to prevent transactions that could be contrary to UK defence and security interests. This is in addition to the national security protections under the Enterprise Act.