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Barclays' Middle East investors block Government bail-out

22 January 2009 / by Rachael Stiles
If the Government moves to help Barclays, the latest casualty of the credit crisis, it could in the process be handing it over to the bank's Middle East investors because of a clause in their agreement.

Instead of accepting help from the Government's £37billion bail-out plan for the banks last October, Barclays opted to go it alone and instead accepted a £5.3billion cash injection from its Middle Eastern investors, Sheikh Mansour Bin Zayed Al Nahyan – a member of the Abu Dhabi royal family – and two Quatari investment vehicles.

But, according to information obtained by The Times, and previously unbeknownst to the Government, a clause written into the agreement states that in return for investors having to wait seven months to receive their shares, which convert at 153.276p, Barclays had to agree that in the meantime it would not raise more capital at a lower price, or the Middle East investors would be able to take their stake at that lower level too.

Because Barclays' shares are now worth 66.1p, if it accepted cash from the Government then the investors would receive about three times the number of shares as was previously agreed, handing them about a 55 per cent stake in the bank.

"This was a clause to protect the Middle East." an insider told The Times. "There seems to have been no thought about protecting the bank at all. If the clause is triggered at this level, the Middle East can lay claim to the whole bank."

The Government is said to be in talks with Barclays regarding the clause, which expires in June, and the Financial Services Authority is reportedly seeking further information and a full explanation about the clause and any further potential implications which could be attached to it.

Barclays share prices have plummeted amid speculation that the Government could nationalise it, losing almost two thirds of its value in just over a week. The Treasury has said that it will not allow banks to fail; during Prime Ministers' Questions yesterday, Gordon Brown said: "If the Government do not take action, no one else will."

© Fair Investment Company Ltd