Consider the headline terms of Barclays’ move to raise up to £7.3bn:
- £3bn of paper issued is being issued to Qatar and Abu Dhabi - paying a coupon of 14 per cent over a fixed term running to 2019, accompanied by an issue of warrants, exercisable at below Thursday’s closing share price at any time over five years. Given the volatility of Barclays stock, applying routine valuation measures, these warrants are worth at least £750m to the Middle Eastern investors.
- A further issue of £4.3bn of short-term convertibles, paying 9.75 per cent until they convert (sometime before next June) at a 25 per cent discount to Thursday’s close.
- Assuming full conversion, the Middle Eastern investors will have 31.2 per cent of the British bank.
Now consider the terms on offer from HM Treasury:
- 10/11 per cent coupon; no warrants
- Existing shareholders would get the chance to buy new stock at an historically depressed price when, according to management, the underlying business is holding up remarkably well.
- Both shareholders and the rest of us would get a full blown prospectus, giving the London market generally some evidence that Barclays’ balance sheet really is as strong as the board insists.
Can the avoidance of having the government on your shareholder register really be so great that you are prepared to effectively pay 50 per cent more for your capital?And why no pre-emption rights, especially when new stock is being offered at a 25 per cent discount? The Barclays statement contains a lame paragraph:
A fully pre-emptive offer to all Shareholders would require a period of market risk exposure of up to some two months which the Board believes represents a risk that is unacceptable to shareholders at this time. The Board has concluded that the Capital Raising provides the best combination of financial terms, certainty and speed for Barclays, which are important given current market conditions. The Board attaches a high degree of importance to pre-emption rights generally and has sought to recognise these to the extent possible in the context of the Capital Raising by giving institutional investors the ability to participate in the issue of MCNs.Crass as it sounds, it is difficult to avoid the conclusion that this is about protecting executive salaries and keeping the books under wraps.And still there’s execution risk here: shareholders have to vote on this. Expect a rowdy meeting on November 24.
Related link
Barclays turns to Middle East for cash boost - FT.com
Barclays presentations - bank website
