Abu Dhabi Set for Windfall on Barclays Stake Sale

Abu Dhabi sold an 11 percent stake in Barclays on Tuesday, making $2.5 billion from an investment that helped the British bank through the financial crisis and raising fears that the rally in bank shares may be over.

Traders said the Abu Dhabi government-owned International Petroleum Investment Company (IPIC) was selling about 3.5 billion pounds worth of instruments that are due to convert into Barclays shares by end of June.

The sale price near 267 pence a share, according to dealers, represents a 16 percent discount from Monday's close of 316.25p.

Shares in Barclays closed 13.5 percent lower at 273.50 p to be the biggest FTSE 100 faller.

Other bank shares fell too as the sale soaked up demand for stock.

The sale also raises fears that other big Barclays investors may also look to take profits, and that other sovereign wealth funds might be looking to exit the investments they have made.

Barclays raised funds from Qatar, China, Japan and Singapore investors last year.

"This tactical move brings into question any foreign investment in major companies — in particular investment from the Middle East," said Manoj Ladwa, senior trader at London spread betters ETX Capital. "I would expect further falls from companies with similar exposure."

"It's clearly a negative signal for the banking sector," said David Thebault, head of quantitative sales trading at Global Equities in Paris. "After stepping in at the beginning of the credit crisis to buy stakes in troubled banks, these guys (Abu Dhabi's IPIC) are now saying: 'the recovery rally in financial stocks is over and the shares are now ripe for profit taking'."

Sharon Lorimer

Singapore's state investor Temasek owns a stake, and its incoming Chief Executive Charles Goodyear may cut the fund's large holdings in banks as he reallocates money to energy and consumer sectors, Nomura analysts said in a report released earlier on Tuesday.

Barclays and Credit Suisse, which was handling the sale, declined to comment on the placing price.

IPIC, an investment vehicle of the Abu Dhabi royal family, will have almost doubled its money since buying the mandatorily convertible notes (MCNs) in October, when Barclays raised funds privately rather than take a handout from the UK taxpayer.

The fundraising angered existing shareholders at the time.

They said the Middle East investors were offered attractive terms.

The MCNs are due to convert into about 1.3 billion shares at 153p per share before the end of this month.

Based on an enlarged Barclays share capital including other MCNs sold last year but excluding warrants held by Abu Dhabi and others, the stake sold represents about 11 percent of the British bank.

Barclays, which escaped the government rescue safety net that caught other UK banks earlier this year, has seen its shares soar more than five-fold in the last three months, after Britain's financial regulator said its capital was adequate.

IPIC said it was also considering selling 1.25 billion pounds of another capital instrument it bought at the same time — reserve capital instruments that pay annual interest of 14 percent.

Abu Dhabi invested up to 4.75 billion pounds in Barclays in October, including 1.5 billion pounds on warrants exercisable at 197p.

Its stake will fall to about 5-6 percent stake with just the exercized warrants, from just over 16 percent.

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