London - Shares in Royal Bank of Scotland rose on Thursday after Britain's finance minister George Osborne said the government would start selling its £32bn stake in the bank.
The sale plan represents a milestone in terms of RBS's recovery from the financial crisis but also means Osborne has given up on his original intention to sell the shares for a profit.
RBS was bailed out during the 2007 to 2009 crisis at a cost of £45.8bn. Its shares, up 1.4% to 360 pence by 08:35 GMT, remain below the government's average buy-in price of 502 pence when it was rescued.
In his annual speech to financiers on Wednesday, Osborne said the government had decided to start selling its 79% shareholding after taking independent advice from investment bank Rothschild and the Bank of England.
Analysts said there would be significant interest from institutional investors willing to overlook ongoing issues relating to past misconduct at RBS and uncertainties over Britain's continued membership of the European Union.
The institutions, some of which are based in the United States, see the bank as a play on Britain's economic recovery. They are also attracted by RBS's modest valuation.
The bank's market value is currently just 0.8 times that of its assets, according to Thomson Reuters data.
By comparison, state-backed Lloyds Banking Group, in which the government has already sold almost half its stake, trades at 1.3 times the value of its assets.
"I would say demand is high from large institutions in the US, the UK and Europe. It's a very attractive risk/reward payoff with potential excess capital down the road," Jefferies analyst Joe Dickerson said.
Investec analyst Ian Gordon expects RBS to have a "very material capital surplus" and said the bank could buy back £10bn of its own shares in 2016.
Chief executive Ross McEwan has improved RBS's performance since succeeding Stephen Hester in 2013, benefiting from an improvement in Britain and Ireland's economies which has enabled the bank to recover loans it had written off.
But the bank's recovery has been hampered by issues relating to past misconduct.
Rothschild has forecast the British government would make an overall profit of £14bn from its bailout of banks during the crisis but estimated a loss of £7bn on RBS based on current share prices.
It said that by starting to sell its shares in RBS, the government would increase liquidity in the stock, making it more attractive to investors and sending a strong signal that RBS is on the road to recovery.