(By Mayur Pahilajani - iStockAnalyst Writer)
New York, NY - Barclays PLC (NYSE: BCS) announced on Friday that the United Kingdom's second largest financial institution is likely to raise up to $11.8 billion (7.3 billion pound) of additional capital from existing and new strategic and institutional investors.
The company, which is trying to raise funds to bolster its balance sheet, will lead the Middle East investors to own up to one third of the company's stake. The investors in Abu Dhabi and Qatar are going to benifit from the deteriorating credit market condition led by rising number of writedowns.
Another reason for the bank to tap sovereign wealth funds in the Middle East is to avert funneling in capital from British government that has set up bailout package for the financial firms in the country. Accepting funds from the authorities would mean the company has to put a cap on executive salaries, restructure managagement boards and make other changes.
"Given the continuing uncertainties in world capital markets, the Board of Barclays resolved to satisfy the capital raising requirements agreed with the UK authorities without delay," Marcus Agius, Chairman of Barclays, said in a statement. "The Board believes that this maintains Barclays as a strong, independent and well capitalised bank."
Under the latest measure, the company said it will issue 3 billion pounds of reserve capital instruments to Qatar Holding and entities representing the beneficial interests of HH Sheikh Mansour Bin Zayed Al Nahyan, a member of the Royal Family of Abu Dhabi, and will pay an annual interest of 14 percent until June 2019.
The company will sell convertible notes of 2.8 billion pounds to Qatar Holding, Challenger Universal Limited (‘Challenger’) and HH Sheikh Mansour Bin Zayed Al Nahyan; along with 1.5 billion pounds worth of convertible notes to existing institutional shareholders and other institutional investors for an annual interest of 9.75 percent until 30th June, 2009.
The investment by Sheikh Mansour Bin Zayed Al Nahyan, one of the brothers of Abu Dhabi's ruler, will allow him to own a 16.3 percent stake in the company. Qatar Holding, which currently owns 6.2 percent, will hold 12.7 percent and Challenger's stake will be pushed up from the current 1.9 percent to 2.8 percent in Barclays.
Barclays said it expects to report a tier one ratio of 11.3 percent compared to an equity tier one ratio of 7.6 percent as of June 30, this year.
In the third quarter the company reported net losses from credit market writedowns of 129 million pound, including 1.2 billion pounds writedowns offset by 1.1 billion pounds gains on the fair valuation of issued notes. The company had managed to raise as much as 4.5 billion pounds from shareholders to shore up its finances as of July 2008.
Shares of the company had increased by more than 7 percent in the European market trading early Friday, but it declined during the late trading session. The stock was down by $2.60 or 19.10 percent to $11.01 at 12:00pm ET in New York Stock Exchange trading. The stock has traded as low as $10.72 to a high at $50.85 in the last 52 weeks.
Source: http://offer.barclays.com/index1/material/Transaction_Announcement_release.pdf
