Thursday, January 22, 2009

If Barclays raises cash, the Arabs will "control" it

The Government is in talks with Barclays after the bank admitted that raising extra capital could trigger a clause that would deliver control to its Middle East investors.

Government insiders were last night reeling at the possibility that helping Barclays could see Britain's fourth biggest lender automatically delivered to the Middle East as the result of a little known clause agreed in the bank's October capital raising.

Sheikh Mansour Bin Zayed Al Nahyan, a member of the Abu Dhabi royal family, and two Qatari investment vehicles invested £5.3bn in the bank in October. In return, they took a series of complicated investment structures, the bulk of which were "mandatory convertible notes".

Under the terms of the deal, the investors have to wait seven months for delivery of the shares, which convert at 153.276p. However, if at any time until June 30 Barclays raises more capital at a lower price, the Middle East investors are able to take their stake at that lower level.

With Barclays' shares now at 66.1p, the bank would have to roughly triple the number of shares issued to Sheikh Mansour and the Qataris. Such a move would hand the Arab investors around 55pc of Barclays, effectively giving them control. With the warrants for an additional £3bn of "reserve capital instruments", their combined stake could rise to 67pc.

One insider said: "This was a clause to protect the Middle East. There seems to have been no thought about protecting the bank at all. If the clause is triggered at this level, the Middle East can lay claim to the whole bank."

The Financial Services Authority is understood to be seeking a full explanation about the clause's implications.

Maybe Barclays should use the US strategy. Make the insiders buy some stock and get the pollyanna bank buyer believers back!

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