LONDON Barclays said it plans to sell billions of pounds worth of shares to new and existing shareholders, sending its shares soaring on Monday as investors celebrated the move to boost its stretched balance sheet.
Britain's third biggest bank said it was considering issuing new equity, but declined to comment on the amount it hoped to raise. A weekend newspaper report said it would raise 4 billion pounds ($7.8 billion) from sovereign wealth funds in a deal that could be completed in the next two weeks.
By 1236 GMT Barclays shares were up 4.1 percent at 331 pence after hitting 358p. They fell to a 10-year low of 293p last week on concern the bank's balance sheet was too stretched and growth was slowing.
Keefe, Bruyette & Woods analyst James Hutson said the placement and pre-emptive rights issue outlined by Barclays "would go a good way towards drawing a line under the market's current capital concerns".
Barclays said in a brief statement its profit in May was "well ahead" of the monthly run rate of 2007, which was 590 million pounds, providing reassurance that any more writedowns it has taken have been modest.
The deal comes after persistent speculation that Barclays will shore up its capital position by raising billions of pounds in a deal structured to bring in cash from outside investors but not dilute existing shareholders.
A Singapore source said Barclays had approached Singapore sovereign fund Temasek and other existing shareholders.
The source, who is aware of the talks, said Temasek had not decided what it would do, and that the fund would examine how much dilution it would cause to the fund's stake of 2 percent if Barclays sells shares to other investors.
Expectations are that Barclays shareholders will get the chance to buy the same percentage of shares in the placing on the same terms offered to new investors -- seen as a discount of up to 10 percent -- but underwritten by sovereign funds.
The mechanism should allow it to sidestep UK pre-emption rights guidelines that make it hard to sell a stake of over 5 percent to an outside investor.
Market commentators have said China Development Bank (CDB), which holds a 3.1 percent stake in Barclays, could take up the offer to avoid having its holding diluted.
But political and financial concerns make CDB reluctant to invest more money in Barclays than the 2.2 billion euros it paid for its initial stake last July, sources close to the Chinese lender said. The bank had not made a final decision, they said.
CDB has seen the value of its investment in Barclays, made just before the credit crisis rocked financial markets, fall by more than 50 percent over the past 10 months.
Analysts said the structure of the deal should see less dilution for investors than under a rights issue, it would remove the threat that unwanted stock is placed in the market, and avoid the volatile trading in shares during rights periods.
Barclays has one of the thinnest capital cushions in Europe and has so far not followed rivals in raising funds. Royal Bank of Scotland and HBOS are repairing capital with big rights issues.
It has taken a more modest hit from credit crunch losses than other banks but its capital adequacy ratio -- with a core Tier 1 capital ratio of 5.1 percent at the end of 2007 -- is now one of the lowest.
The bank wants to raise its core tier 1 capital ratio above 5.25 percent. Each billion pounds raised would lift the ratio by about 0.25 percentage points, so its ratio would rise to near 6 percent if it confirms a 4 billion pound fundraising and writedowns have been relatively modest.
Barclays has lost just over $5 billion from assets tarnished by the U.S. subprime housing crisis and credit crunch, less than a third of hits taken by RBS and UBS.
In its statement Barclays said its investment banking and investment management (IBIM) profits in May were in line with a year before, which analysts at Deutsche Bank said was "an extremely strong result" given the difficult capital market conditions and the strong year-ago performance.
Its profit is expected to fall about 18 percent this year to 5.7 billion pounds, according to the average forecast from 23 analysts polled by the bank.
(Additional reporting by Mark Potter and Sue Thomas; Editing by Louise Ireland)