October 31, 2008 / 11:16 AM / 11 years ago

Barclays raises $12 billion from Middle East, others

LONDON (Reuters) - Middle East investors will own up to one third of Barclays Plc (BARC.L) after Abu Dhabi and Qatar provided most of 7.3 billion pounds ($12.1 billion) raised by the bank on Friday to repair damage from the global financial crisis and avoid taking UK government rescue funds.

A Barclays sign is seen outside a branch of Barclays Bank in central London, May 15, 2008. REUTERS/Toby Melville

Barclays said the fundraising through a range of complex capital instruments will allow it to rebuild capital to levels required by the UK regulator without taking taxpayer cash.

That will allow the bank “to be in charge of our own destiny” without the threat of government interference, said Barclays Chairman Marcus Agius.

But its shares fell on concern the fundraising is more costly than cash on offer from the government. An issue of reserve capital instruments (RCIs) will pay annual interest of 14 percent until June 2019. Warrants for shares worth another 3 billion pounds could also be issued.

By 1240 GMT the shares were down 15 percent at 174 pence.

Barclays has lost billions of pounds from credit-related asset writedowns and is faced with a sharply slowing UK housing market and economy. In July, it raised 4.5 billion pounds from shareholders to prop up its capital base.

“Barclays has managed to avoid the constraint on dividends and general government interference which comes with the government scheme, but at a price,” said Bruno Paulson, bank analyst at Bernstein. “The ... capital is fairly expensive.”

Barclays said the coupon on the RCIs is tax deductable and after tax it will cost approximately 10 percent. After adding in the value of the warrants the cost should be similar to preference shares other banks are expected to issue, it said.

Britain’s second biggest bank is raising up to 3.5 billion pounds from Sheikh Mansour Bin Zayed Al Nahyan, one of the brothers of Abu Dhabi’s ruler. That could give him a 16.3 percent stake.

“Our investment in Barclays is a vote for the UK financial system as a whole,” said Ali Jassim, adviser to Sheikh Mansour. The sheikh said his stake was a personal investment.

Barclays shares initially jumped as investors welcomed the bank’s ability to raise cash in tough markets and as it said group profit in the first nine months of this year was “slightly ahead” of the same level a year earlier.

It wrote down 129 million pounds on structured credit market assets for the third quarter, but said 1 billion pounds of gains on debt it carries were reversed in October.

SHIFT IN CAPITAL POWER

Barclays is raising up to 2 billion pounds from Qatar’s sovereign wealth fund and 300 million from a member of Qatar’s royal family. That could leave Qatar investors holding up to 15.5 percent.

Barclays’ investor base has been transformed in the past two years, as it has raised funds from investors in China, Singapore and Japan as well as the Middle East and the bank expects to benefit commercially from the links as well as getting cash.

“There has been a significant shift in the availability of capital and economic power in the world over the last five years and we’re ensuring we’re aligned with those changes,” said John Varley, Barclays chief executive.

The bank is seeking to raise up to a further 1.5 billion pounds from the sale of mandatorily convertible notes (MCNs) with existing and other investors.

Asked on a conference call whether Barclays has enough capital to avoid more fundraising, Varley said: “Yes, we have what we need.”

Barclays said earlier this month it would raise capital privately while rivals Royal Bank of Scotland (RBS.L), Lloyds TSB (LLOY.L) and HBOS HBOS.L agreed to take up to 37 billion pounds of taxpayers’ funds to help rebuild balance sheets hit by the credit crisis and prepare for possible recession.

That could leave the government as a majority shareholder in RBS and with over 40 percent of a combined Lloyds/HBOS. The government has said it will limit executive pay and halt dividends for shareholders until preference shares are repaid, but said it would not interfere with strategy.

Barclays has said it should gain a competitive advantage by not having government as an investor, and will also avoid the scrutiny that its rivals may face, analysts said.

The fundraising will lift Barclays’ core tier 1 capital ratio to about 7.6 percent from 6.3 percent. The ratio could rise near to 8 percent when other efficiency savings kick in, analysts said.

(Additional reporting by Dominic Lau and Atul Prakash)

Editing by David Cowell

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