Barclays raises £4.5 billion from Asia and Mideast

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Barclays was successful in raising the money it needed. It was able to avoid a rights issue with the attendant problems that HBOS has faced by going cap in hand to Asia and the Middle East. In the end, it was the Qatar Investment Authority and Sumitomo Mitsui Banking Corporation who bailed out the British Bank.

Earlier in the month, I speculated that rights offerings were going to get more difficult after RBS revealed it didn’t place all its shares in the time allotted.

RBS failed to get all the money it needed for its rights issue with 300 million shares still in the hands of its underwriters, reports the FT. These shares are to be sold today. This massive $24 billion (£ 12 billion) shows the limits of banks’ ability to raise capital and underscores that Barclays made the correct decision in not having a rights issue in a market swamped by new shares.

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With HBOS having major headaches as its shares have fallen below the price of its own rights offers. It does seem that Barclays made an excellent decision to go to institutional investors to secure more funding. The Times of London reported that Barclays’ shares rallied on news of its successful capital raising exercise.

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Some £4 billion will be raised through a placing and open offer of 1.407 billion new shares at 282p each, a 9.3 per cent discount to Tuesday’s closing price, on the basis of three new shares for every 14 held. The balance of £500 million will be raised through a placing to Sumitomo MitsuiBanking, Japan’s third biggest bank, of 169 million new shares at 296p, a 4.7 per cent discount.

China Development Bank, which already owns 3 per cent of Barclays, will invest £136 million in the placing and open offer and its stake in the bank will remain the same. Temasek, the Singapore investment vehicle, which currently owns 2 per cent of Barclays will see an increase in the size of its stake after agreeing to invest up to £200 million.

The Qatar Investment Authority and Challenger, the company representing the chairman of Qatar Holding, have agreed to invest up to £1.764 billion and £533 million respectively, Barclays said. The participation of other institutional investors will be revealed in the prospectus, published later today.

Barclays said that the issue will enable it to run capital ratios ahead of its long-standing targets of 7.25% tier one and 5.25% equity tier one.

Taking into account the proceeds of the share Issue, Barclays expects to have a tier one ratio of 8.8% and an equity tier one ratio of 6.3% as at 31 December 2007. Tier one capital ratios are a closely watched measure of financial strength and Barclays has been under fire from analysts for letting its deteriorate.

The Times of London, 25 Jun 2008

However, funding for banks is becoming increasingly difficult as writedowns seem to be neverending. I look at Barclays deal as a real coup. Let’s see how HBOS fares with its rights issue

Update: 1220 EDT – Barclays’ share issue, Financial Times, 25 Jun 2008

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