UK extends sale of Lloyds shares to institutions

By Sinead Cruise and Simon Jessop

LONDON (Reuters) - Britain will further whittle down its stake in bailed-out lender Lloyds Banking Group (LLOY.L) via a scheme aimed at major investors in the early months of 2016, before sealing its exit with a broader offer to the general public.

The sale of shares to Britons is set to be one of the largest privatisations of a state-backed company since the 1980s when Margaret Thatcher's Conservative government sold stakes in British Telecom and British Gas.

UK Financial Investments, the body set up to manage the process, said on Friday its trading plan offering shares to institutional investors would be extended into the new year, and could run until June 30. It had been set to end this month.

The British finance ministry said in October it would sell at least 2 billion pounds of Lloyds shares to private retail investors in spring 2016.

That was despite opposition from some Lloyds institutional shareholders, who have said the offer created unnecessary costs and could actually reduce the total potential return to taxpayers.

The new timetable outlined on Friday leaves scope for the plan to be halted to ensure the government holds sufficient shares for the final sell-off, seen as a symbol of Britain's recovery from the financial crisis.

"The trading plan has been a huge success so far, enabling the government to recover over 9 billion pounds for the taxpayer, and reducing the government's remaining stake in Lloyds to around 9 percent," the finance ministry said in a statement.

Some 11.2 billion shares have been sold during the trading plan, reducing the government's holding to 9.2 percent.

Given the government's intention to sell at least 2 billion pounds of shares to retail investors, that means fewer that 4 billion more shares can be sold under the trading plan.

Lloyds shares were trading 0.3 percent up at 0933 GMT, compared with a flat FTSE-100 (.FTSE).

The bank was rescued with a 20.5 billion pound taxpayer-funded bailout during the 2007-09 financial crisis, leaving the state holding 43 percent.

The finance ministry began selling off its stake in September 2013 and has now recouped around 16 billion pounds of the cash required to rescue Lloyds.

Lloyds, which already has more retail investors than any other stock in Britain's FTSE 100 index, paid its first dividend since its bailout earlier this year and is expected to ramp up payouts over the next 2 to 3 years.

Shares have been sold through the trading plan, led by U.S. investment bank Morgan Stanley (MS.N), for an average price of over 81 pence, above the average 73.6 pence the government originally paid for the shares.

The Lloyds shares will be offered to retail investors at a discount of 5 percent to the market price, with a bonus share for every 10 shares for those who hold their investment for more than a year.

(Additional reporting by Steve Slater; Editing by Keith Weir)