Defence research group Qinetiq yesterday valued its stock market flotation as high as £1.33 billion, as investors clamoured to take part in the first privatisation by the Labour Government.

Shares in Qinetiq are being offered to institutional investors and company staff - including those at its Malvern facility in the West Midlands - within a range of 165p to 205p, which will value the business at between £1.1 billion and £1.33 billion when it starts trading on the stock exchange around February 10.

That range should put it in the same league as fellow defence groups Meggitt, Ultra Electronics, which has a major facility at Rugeley in Staffordshire, and Cobham, the inflight refuelling specialist.

The flotation will see the stake held by the Ministry of Defence - the biggest customer of Qinetiq - fall to 23.7 per cent, while US firm Carlyle Group also intends to cut its interest from 31 per cent to approximately 12.9 per cent.

However, the long awaited announcement of the price range of the initial public offering (IPO) could intensify calls for an investigation among MPs into whether Carlyle was handed a stake in Qinetiq too cheaply.

Carlyle stands to make a profit of about £370.1 million on its original investment in 2002 if the flotation takes place at the top of the price range.

Sir John Chisholm, chair-man of Qinetiq, said: "We are delighted by the level of investor interest that has been shown at this stage in the IPO process."

Qinetiq also said that £45 million of the proceeds will be used to reduce the deficit in its pension fund.

Sir John will own two per cent of Qinetiq following the flotation, and his shares will be worth up to £26.6 million, representing a massive profit on the £129,000 he originally paid for his stake.

More than 9,000 staff at locations including Bristol, Bedford, Rosyth in Fife and Malvern in Worcestershire will each pick up free shares worth £500 if they meet "eligibility criteria".

A further one per cent of the offer will be reserved for staff to apply for shares if the demand is there.

The origins of Qinetiq are in the defence research laboratories at the MoD.

It can trace its heritage from the birth of powered flight in the UK at Farnborough, through the development of radar at Malvern during the Second World War to inventions such as thermal imaging, carbon fibre and internet technologies during the Cold War.

Its current products range from sensors and software for military chiefs to advanced security systems to protect financial firms from fraud. It also provides satellite images to the US Naval Ice Centre, warning ships in the North Atlantic about the location of icebergs.

Following its flotation, Qinetiq plans to focus on its core customers within the MoD and tap overseas markets at the same time as driving further into areas such as security and counter-terrorism.

Qinetiq's chief executive, Graham Love, said investors were pleased with the company's growth, and indications of strong demand for the listing had lifted the expected value above earlier estimates.

"We are a company which is growing pretty rapidly, obviously partly through acquisitions but also, when you look at the figures, underlying organic growth is there as well because of what we've been doing in terms of repositioning the company into growth markets in the UK," he said.

"That message, I think, has gone home, and people are pretty excited about it, so that's why we've come out with a range which is slightly higher than previously trawled in the Press."

However, market observers were split on where Qinetiq shares would likely be priced.

Financial bookmakers Cantor Index set a grey-market price range of 195-205p on the shares, near the top of the range, and fellow spreadbetter IG Index predicted a range of 190-196p.

Investment banks CSFB, JP Morgan Cazenove and Merrill Lynch are acting as bookbuilders for the IPO.