ABU DHABI QUIETLY CASHES OUT OF BARCLAYS / THE FINANCIAL TIMES

Last updated: July 18, 2013 10:41 pm

 

Abu Dhabi quietly cashes out of Barclays

 

By Sharlene Goff and Daniel Schäfer

 

©Reuters

 

 

The exit of Abu Dhabi investors from Barclays has happened with far less fanfare than their dramatic arrival almost five years ago.

 

Back in October 2008, as the financial markets were reeling from the high-profile government bailouts of Royal Bank of Scotland and Lloyds, Barclays sealed a deal with Middle Eastern investors that saved it from the same fate.

Sheikh Mansour bin Zayed al-Nahyan, a member of Abu Dhabi’s ruling family, together with Qatari investors swept into the bank as part of a £7.3bn deal that gave the two Middle Eastern investors a 30 per cent stake.

While the deal – which involved a total of £3.5bn from Abu Dhabi – provided a lifeline that helped Barclays’ top executives in their desperate fight to stay out of government control, it was controversial from the start.

As soon as John Varley – then chief executive – rejected a state-sponsored bailout of Britain’s banks, his promises that Barclays could raise the funds privately were met with scepticism by rivals and investors.

The capital raising followed a hastily arranged trip by a clutch of Barclays’ former executives, including its former president Bob Diamond as well as Mr Varley, to the Middle East to tap up potential investors.

Within weeks of sealing the funds, Barclays had been forced to change the terms after investors expressed anger that it had been done at too generous a price and they had not been offered the chance to participate.

Ultimately, the deal was a lucrative one for Sheikh Mansour.

When his investment vehicle, International Petroleum Investment Company, sold its Barclays shares in June 2009, he booked an estimated £1.46bn profit on the £2bn of convertible notes it had bought as part of the capital raising only eight months earlier. The sale was billed as one of the most successful investments of the financial crisis, further irking existing shareholders.

At that time Sheikh Mansour’s fund said it would hold on to warrants that gave it the right to buy 758m Barclays shares at a price of 198p. It is unclear whether he exercised these warrants but Sheikh Mansour was propelled back to the top of Barclays’ shareholder register in 2012.

The share price on the day he sold those shares in a move that was barely noticed by the market last month was almost 289p and it has risen almost 10 per cent since then.

Although the move was barely noticed by the market it was a symbolic moment in Barclays’ attempts to shake off the effects of the financial crisis and restore normality to its shareholder register. While Barclays is still mired by scandals such as this week’s fine by US energy regulators, Sheikh Mansour’s decision to sell his outstanding shares is evidence of the bank’s recovery in recent years.

 

Abu Dhabi’s sell-off has promoted fellow Gulf investor Qatar Holding to become Barclays’ largest shareholder with a stake of 6.3 per cent, according to Bloomberg data.

For Qatar the investment in Barclays, which totals £6.1bn made in two cash calls in June and October 2008, has not been such an obvious success as for Abu Dhabi.

Barclays turned to Qatar Holding, a subsidiary of the Qatar Investment Authority, and Challenger – an investment vehicle of Qatar’s Prime Minister Sheikh Hamad bin Jassim bin Jabr al-Thani and his family – twice in 2008. The sheikh – often referred to as HBJ – is also the chairman of Qatar Holding.

 

The investments came back to haunt Barclays’ senior management last year when it emerged that the UK’s Financial Services Authority and Serious Fraud Office were investigating the terms of the emergency fundraising struck with the Qataris.

When Barclays first revealed a probe a year ago it added that chief financial officer Chris Lucas was being investigated with three other former and current employees.

The others were John Varley, the bank’s former chief executive, Richard Boath, its co-head of global finance in Europe, the Middle East and Africa, and Roger Jenkins, the former head of Barclays’ now closed tax advisory business.

Regulators are in particular scrutinising fees paid by Barclays to Qatar as part of the fundraisings. The bank disclosed with the second cash call in October 2008 that Qatar Holding would receive £66m for “having arranged certain of the subscriptions in the capital raising”.

The issue became even more uncomfortable for Barclays when the Financial Times revealed at the end of January that UK authorities were also probing an allegation that Barclays loaned Qatar money to invest in the bank as part of the cash call.

 

Like Abu Dhabi, Qatar’s direct investment arm at the time received warrants with the right to convert them into shares for a period of five years at a strike price of 198p.

But it sold the 379m warrants – equivalent to a roughly 3 per cent stake in the lender – to Goldman Sachs and Deutsche Bank in November last year in a move described as “portfolio management”.

The price at which the warrants were sold was not disclosed. But given that Goldman and Deutsche later sold Barclays shares at a price of 244p, it looks as if the Qataris did not strike as good a price as Sheikh Mansour did in his little-noticed sale last month.

 

Copyright The Financial Times Limited 2013.