Abu Dhabi investor sells Barclays stake - Shares fall as Gulf vehicle takes profits

Abu Dhabi investor sells Barclays stake - Shares fall as Gulf vehicle takes profits
By Kate Burgess, Peter Thal Larsen and Neil Hume
Copyright The Financial Times Limited 2009
Published: June 1 2009 21:12 | Last updated: June 2 2009 14:56
http://www.ft.com/cms/s/0/6dcdae88-4ee6-11de-8c10-00144feabdc0.html


Shares in Barclays tumbled on Tuesday after one of its largest Middle Eastern shareholders announced plans on Monday night to offload its stake in the British bank, pocketing a large profit less than seven months after making its £3.5bn investment.

International Petroleum Investment Corp, an investment vehicle of the Abu Dhabi royal family, was finalising a placing of 1.3bn Barclays shares with institutional investors. The group also invited offers for its entire £1.5bn holding of Barclays capital notes in a process that will be completed by Wednesday . Both sales are being handled by Credit Suisse.

The sale of the notes and the shares, which have surged in value in recent weeks as fears that Barclays would be nationalised have receded, will startle UK shareholders who were told last autumn that IPIC chairman Sheikh Mansour bin Zayed al-Nahyan, a member of Abu Dhabi’s royal family and owner of Manchester City football club, was a long-term strategic investor in the bank. The shares have surged in value in recent weeks as fears that Barclays would be nationalised have receded.

Large institutional investors were furious that Barclays turned to Middle Eastern investors for new capital on lucrative terms without giving existing shareholders the opportunity to participate. Barclays executives defended the deal by arguing that it allowed the bank to remain independent of the UK government.

The decision by such a high-profile investor to offload its stake after such a short period may undermine confidence in Barclays, which has benefited from renewed shareholder support after the Financial Services Authority concluded the it did not need to turn to the government to raise additional capital.

Shares in Barclays fell 13.2 per cent in early afternoon trading on Tuesday to 274½p.

IPIC has until the end of June to convert a £2bn investment in mandatory convertible Barclays stock into ordinary shares at 153p a share. At Monday night’s closing price of 316.25p, up 18.75p, IPIC’s convertible shares were worth more than £4bn.

The shares are likely to have been placed at a substantial discount to that price, with brokers suggesting the shares were being placed at 267p. Even at this price, however, IPIC would pocket a profit of around £1.4bn on its £2bn investment in convertibles. The overall profit will depend on the price at which IPIC can sell the capital notes.

The long-term fate of Abu Dhabi’s investment in Barclays has been uncertain since it emerged recently that the shareholding had been placed in IPIC, which targets investments in the oil and gas industry. In a statement on Monday night, His Excellency Khadem al-Qubaisi, managing director of IPIC, said the group has a “high regard” for Barclays and that the decision to sell reflected its desire to invest in the energy industry.

As part of the £7.3bn recapitalisation of the bank agreed in October, IPIC also has warrants to purchase up to £1.5bn worth of Barclays shares at 197.8p, though it said it had no intention of selling or hedging that investment.

John Varley, chief executive of Barclays, said in a statement on Tuesday: ”In the period since IPIC and the government of Abu Dhabi took a position in Barclays in 2008 through their purchase of mandatorily convertible notes and reserve capital instruments we have been able to broaden our strategic and commercial relationship, and we look forward to developing this further going forward.”

The other Middle East investor was Qatar Holding and Challenger, a company representing Sheikh Hamad Bin Jassim Bin Jabr Al-Thani, chairman of Qatar Holding, which invested a total of £2.3bn in convertible notes and capital notes. People close to Barclays said that Qatar Holding remained a supportive investor in Barclays.

Barclays is in talks to sell Barclays Global Investors, its investment management arm, in a move designed to bolster its capital reserves. BlackRock, the US money manager, approached Barclays last month about buying BGI in a deal expected to be worth more than $10bn (£6.1bn).

Additional reporting by Andrew England and Adrian Cox