A clause inserted during the Abu Dhabi Royal Family’s investment in Barclays last October has made it practically impossible for the Government to take a meaningful stake in the bank, The Times has learnt.
News of the clause is likely to reignite controversy over the way that Barclays raised the money — dubbed at the time by Vince Cable, Liberal Democrat Treasury spokesman, as “a scandal of mammoth proportions”. Barclays shares fell another 9 per cent yesterday, having collapsed by 35 per cent at one point, amid speculation that it is poised to raise more capital — either in the market or from the Government.
But the small print in the deal, in which Barclays raised £7.3 billion from Abu Dhabi and Qatar, means that if the bank raises fresh capital before the end of June, the Middle Eastern investors would receive a greater number of shares for their original investment without paying more. If Barclays were to raise fresh capital at last night’s closing price, for example, it would automatically hand almost 50 per cent of the bank to the Middle Eastern investors. The only way to get around the anti-dilution clause, should Barclays need more money before the end of June, would be if new capital was raised at more than the 153p-a-share at which paper issued to Abu Dhabi and Qatar is due to convert into Barclays stock.
This would mean that if the Government wanted to take a meaningful stake in the bank, it would have to do so by paying more than 153p for Barclays shares — which were trading at just 66.1p yesterday. The Treasury would face accusations of wasting taxpayers’ money were it to do this.
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The clause was inserted at the request of Amanda Staveley, chief executive of PCP Capital, the private equity firm, who advised the Middle Eastern investors on taking the stake. It is understood that she insisted on the clause because she was concerned that instability in the markets in coming months could potentially force Barclays to raise more capital.
The Times has seen a letter from Ms Staveley to Sheikh Mansour bin Zayed Al Nahyan, the owner of Manchester City Football Club and the Abu Dhabi royal who led the deal, explaining the benefits of the clause.
Part of it says: “If Barclays does have to issue new shares at a price which is, for example, half our agreed price, then you will automatically get twice as many ordinary shares for the money you have already invested. If this provision comes into effect you could, subject to the size of any new investment, potentially end up owning significantly more of Barclays Bank at no extra cost.” Ms Staveley last night declined to comment but sources at Barclays confirmed the clause exists.
Meanwhile, Barclays was yesterday pressing on with contingency plans to bring forward its annual results amid growing investor unease over its financial strength. Although it is due to publish its figures on February 17, it is trying to speed up the process to pacify increasingly nervous investors. Traders fear that the bank’s £1.4 trillion balance sheet could contain more hidden problems and that the worsening global economy will add to the red ink.
The lifting of the ban on short-selling — making down bets — on bank shares last Thursday has added to investor fears, though there is little evidence of widespread “shorting” of bank shares. MPs on the Treasury Select Committee yesterday wrote to the Financial Services Authority asking it not to hesitate in re-introducing the ban if it found shortsellers were undermining stability of the banking sector.
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