Business - Barclays to raise 7.3 billion pounds in share sales,mostly to Mideast Nations

Julia Werdigier

Friday, October 31, 2008
LONDON: Barclays plans to raise £7.3 billion by selling shares to Abu Dhabi and Qatar to meet Britain's new capital requirements for banks without the government's help.

Barclays, one of Britain's biggest banks, said Friday that it would sell £5.8 billion, or $9.4 billion, of convertible notes, which could leave the Middle Eastern investors with as much as 32 percent of the bank. An additional £1.5 billion would be raised by selling securities to new and existing institutional shareholders.

"One has to give Barclays credit for being able to raise that capital," said Adrian Darley of Resolution Asset Management in London. "But it is also dilutive for shareholders, and even though this is enough to keep them operating, the question for Barclays remains whether it's enough to give them flexibility to go after opportunities in the current market."

Barclays said the new investments would also help broaden the its relationships in the Middle East and Asia, regions that gained clout in the global economy and expect to benefit from Barclays's expertise in risk management, equities and acquisition advice.

Unlike Royal Bank of Scotland, HBOS and Lloyds TSB, Barclays has turned down government assistance to reach the new capital requirements because the money came with restrictions on bonuses, lending and dividend payments. The Barclays chief executive, John Varley, said that raising the capital itself would give Barclays more flexibility to benefit from opportunities that could arise because of the financial market downturn.

Sheik Mansour bin Zayed Al Nahyan, a member of the royal family of Abu Dhabi and chairman of the International Petroleum Investment Co., will own as much 16 percent of Barclays while Qatar Holding will have a 12.7 percent stake. Challenger Universal, another Qatari investment vehicle, will own as much as 2.8 percent of the bank.

Barclays's efforts to weather the financial crisis without government help are being watched by those investors and lawmakers, who believe they are a benchmark for the success of Prime Minister Gordon Brown's bank bailout package. Britain's plan to offer its banks as much as £50 billion to shore up their capital in exchange for preferred shares was initially applauded around the world as an efficient way to strengthen the country's ailing banking sector but recently caused controversy.

Some investors and opposition politicians questioned the long-term effects of government intervention on Britain's banking industry and whether the government would indeed be able to recoup taxpayers money as planned. Their argument is that current shareholders in the three lenders are under pressure to buy additional shares as the banks raise capital to avoid the government becoming a stakeholder because it would suspend the dividend. At the same time, the shareholders might be reluctant to throw good money after bad.

After initially rising, Barclays's shares fell 12.8 percent Friday in London on concern that existing shareholders' investments would be diluted. Its shares have fallen 63 percent this year, less than those of Royal Bank of Scotland, one of the lenders that became partly government-owned as part of the bailout plan.

Barclays also decided to withhold its second-half dividend but said it planned to resume payouts in the second half of 2009. Barclays said Friday that it regretted that private shareholders would not be able to participate in the capital raising, citing time constraints.

Roger Lawson, a spokesman for a British association representing private shareholders, said small shareholders preferred Barclays's plan to the government bailout. "We don't particularly like it, but it's a necessary evil," Lawson said. "Under the government plan, no dividend for five years is very damaging for shareholders. They're fed up of giving money to banks and not getting anything in return."

The shareholder group said Friday that it was preparing a campaign against the government's plans to halt dividends, saying that the restrictions would make it harder for the banks to raise further money themselves.

For Barclays, it is the second time in four months that it tapped Middle Eastern investors to improve its capital base. Qatar, Temasek Holdings, China Development Bank and the Sumitomo Mitsui Banking agreed to invest a total of £4.5 billion in the bank in June.

Barclays's shares have fallen more than 40 percent since then.

"Given the continuing uncertainties in the world capital markets, the board of Barclays resolved to satisfy the capital raising requirements agreed with the U.K. authorities without delay," said Barclays's chairman, Marcus Agius. "This maintains Barclays as a strong, independent and well-capitalized bank."