Barclays new share issue

Barclays raise funds…

There has been speculation for some weeks that Barclays Bank would soon be forced to strengthen its balance sheet with a new share issue. This finally happened on the 25th June when the UK bank announced plans for a £4.5bn fundraising exercise. However, this is no ordinary rights issue as being used by the other banks like HBOS and Bradford and Bingley. Barclays has seen the problems that these other banks have been experiencing with their new share issues. The innovative structure of the new Barclays share issue is worth a brief explanation.

The UK bank is selling £4.5bn new shares to a number of large international investment groups. These include new investments in Barclays of £1.7bn from the Qatar Investment Authority, the state-owned arm of the gulf state, £533m from a quite separate Qatari investment company called Challenger and £500m from the Japanese bank Sumitomo Mitsui Banking Corporation. At the same time the existing investors the China Development Bank and the Singaporean investment company Temasek will both increase their investments by £136m and £200m respectively.

So where does this leave the Barclay’s smaller retail shareholders? They are being given the chance to buy three additional shares for every 14 they already own at a price of 282p which was at a discount of nearly 10% compared to the market share price. This looks remarkably like a traditional rights issue. However, the difference is that should these investors decline to buy these extra shares they will instead be purchased by the range of International Investment groups that are already committed to participating in Barclay’s share sale. They are effectively agreeing to act as underwriters to the issue.

The announcement of the new fund raising was generally well received with Barclay’s share price rising by 6% on the day of the announcement. However, some doubts remain especially about the valuation of certain complex debt securities on their balance sheet. There is also unease about their decision to not mark down the value of certain debt market products that it holds on its books. Barclay’s chief executive, John Varley, and his colleagues must hope that the share issue is a success and that it will shore up its finances.