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Barclays manages to avoid cut price rights issue

26 June 2008 / by Rebecca Sargent
Barclays has become one of the only major high street banks to avoid raising cash through a rights issue. Instead it has launched a share issue that offers new shares to new investors as opposed to cut price shares exclusive to existing shareholders.

Rumours have been circulating Barclays for months, but, as leading high street lenders began to launch rights issues in quick succession, Barclays remained strong. However, according to experts, it was only a matter of time before the bank raised funds as its balance sheet would soon seem weak in comparison to those lenders who had already made cash calls.

Consequently, Barclays has launched a share issue, much to the relief of its existing shareholders. The move has been made to, "enable Barclays to strengthen its capital base and operate capital ratios that are ahead of its targets."

The plan will raise approximately £4.5billion from new and existing investors, including a sale of as much as 10 per cent of the company to Qatar Investment Authority. The amount Qatar investors will be allowed to snap up will depend on the number of existing shareholders who take up their rights of three new shares for every existing 14 at 282p each.

Speaking of the fund raising plan, group chief executive at Barclays, John Varley, said: "We position ourselves to capture opportunities for new business at attractive margins in our retail and commercial banking businesses and in investment banking and investment management. Our ability to capture the opportunities is reinforced by the new and strengthened relationships we have announced today."

The move from Qatar investors is the second large cash injection into a UK company this week. The Qatar Investment Authority increased its shares in Sainsbury's by 7 million earlier this week; it now owns more than 25 per cent stake in the company.

Consequently, shares in Sainsbury's increased in value slightly yesterday, as did shares in Barclays on the news of its cash boost. Meanwhile, Bradford & Bingley have refused to give investment company Resolution access to its books amongst rumours of an alternative £400million rights issue to the buy-to-let mortgage specialist's pending arrangement with Texas Pacific Group (TPG).

© Fair Investment Company Ltd