Friday, October 31, 2008

Barclays Spurns British Bailout Money in Favor of More Expensive Private Capital

Rather than face the indignity of a capital injection from its own government, Barclays chose instead to raise capital from Middle Eastern investors on more onerous terms.  Alphaville has a nice summary of the financing package it arranged with Qatar and Abu Dhabi and concludes that executives made these decisions in their own self-interest at significant cost to shareholders to keep the British government from meddling in their bonus pools and corporate governance.  Here's a quick summary of the terms:
  • $4.86 billion paying a coupon of 14% until 2019, with in-the-money (as of Thursday's price) warrants worth around $1.2 billion.
  • $7 billion billion short-term converts paying 9.75% until conversion (sometime next June) at a 25% discount to Thursday's close
  • Assuming full conversion, Middle Eastern investors will own 31.2% of the bank.
Compare this to a 10-11% coupon for the British package with no warrants, with the caveat that the bank would have to issue a full blown prospectus and let the British government have a say  in compensation and the composition of top executives.  Shareholders will need to vote on this so the possibility exists of a shareholder revolt.  Barclays may find itself turning to the government, hat in hand, after all.   

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