Shares in Qinetiq, the defence research firm being controversially floated by the Ministry of Defence, rose as high as 216p on their stock market debut , before easing back slightly to close at 213p.

The company was floated at 200p, valuing the business at £1.3 billion. The 6.5 per cent gain represents a healthy first day premium for investors who subscribed to the shares.

City bankers working on the float at Credit Suisse, JP Morgan Cazenove and Merrill Lynch earlier signalled a range of 165p to 205p. Dealers were last night pointing to a price of between 195p and 205p.

The listing of Qinetiq on the London Stock Exchange is the first privatisation under Labour since it came to power in 1997. It has attracted considerable controversy with the Government coming under fire for selling off national assets on the cheap.

John Reid, the defence secretary, has been forced to defend the float, claiming taxpayers are still getting value for money.

The initial decision to exclude individual investors from the offering also came under fire, although it was later decided "not to discriminate" against private punters who applied for shares through their stockbrokers.

While there was no special allocation for retail, it is understood that all those who applied for a maximum of £1,000 worth of shares received their allotment. Individual investors accounted for 6 per cent of the Qinetiq offer.

Some 75 private client brokers applied for shares in Qinetiq, with retail investors eventually collecting 18 million of the shares, worth £36 million - out of a total of £617.5 million raised by the listing.

Of that amount, Qinetiq will keep £150 million.

As well as 17,000 individuals applying for the shares, about half of Qinetiq's 9,000 strong workforce will now become stockholders.

At the highest initial price of 216p this morning, the privatisation brought an 8 per cent premium for investors. Full access will be made available to retail investors next week, when trading becomes unconditional.

QinetiQ set a price band of 165p to 205p in its prospectus last month but dealers said the flotation had attracted a lot of interest among City institutions.

The flotation will make fortunes for Carlyle, the private equity group that bought a 34 per cent stake in QinetiQ for £42 million in 2003, and for QinetiQ’s senior management.

At the 200p price set for the shares this morning, the stake held by Sir John Chisholm, Qinetiq's chairman, is worth about £26 million.

After the float the Government will be left with a 23.7 per cent stake in the group and will also hold a "golden share" as a safeguard for the national interest.

The National Audit Office has launched a probe into whether the Ministry of Defence should have sold Qinetiq to Carlyle for a higher price.

The grey market spread for the debut was 216p to 223p yesterday.

Lord Drayson, the Defence Procurement Minister, last night defended to The Times the Government’s decision not to offer the shares to retail investors. "Our advice was that sending out a retail prospectus, setting up the back-up and an advertising campaign would have cost us about £23 million and for no benefit," he said.

"My job was to make sure that all taxpayers benefited not just some. It wasn’t in the interests of the taxpayer to offer it to small shareholders."

Lord Drayson said there was no plan to dispose of the Government's remaining stake.

QinetiQ: a good deal or overpriced?

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