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Barclays has announced that two strategic Middle Eastern investors will own 31.8% of the Group. In its proposed new capital raising of £7.0 billion, current retail investors will not be able to participate. The capital raisingis more expensive than that of other UK financial institutions such as Royal Bank of Scotland, Lloyds TSB and HBOS which have agreed to investments by the UK government. Barclays announces Capital Raising The Board of Directors of Barclays today announces a proposal to raise up to £7.3 billion of additional capital from existing and new strategic and institutional investors. The Capital Raising, which is subject to approval by Barclays shareholders, will be effected through an issue of £3 billion of Reserve Capital Instruments, with an associated issue of warrants, and an issue of up to £4.3 billion of Mandatorily Convertible Notes. As a result of the Capital Raising, Barclays expects to fully satisfy its commitment, as announced to the market on 13th October 2008, to raise new external capital as part of its overall plan to achieve the new higher capital targets set by the UK Financial Services Authority for all UK banks. The Capital Raising will: • enable Barclays simultaneously to achieve its tier one and equity capital issuance commitments to the FSA with certainty and ahead of the previously announced timetable; • strengthen links with existing large shareholders and introduce a substantial new investor to Barclays; and • provide the opportunity for existing institutional shareholders to participate in the Capital Raising by subscribing for Mandatorily Convertible Notes. The Board estimates that, taking into account the proceeds of the Capital Raising, on a pro forma basis (assuming issue and conversion of £4.3 billion of Mandatorily Convertible Notes) Barclays would have reported a tier one ratio of 11.3% and an equity tier one ratio of 7.6% as at 30th June 2008. This excludes the impact of any future exercise of the Warrants. Barclays has also today released its Interim Management Statement stating that Group profit before tax for the nine months ended 30th September 2008 was slightly ahead of 2007. Income growth was strong, and costs grew broadly in line with the rate of income growth. Impairment charges grew at a similar rate to the first half of the year. Third quarter 2008 results included a preliminary estimate of the net benefits arising on the acquisition of Lehman Page 2 of 25 Brothers North American investment banking and capital markets businesses; and net losses from credit market writedowns of £129 million, comprising writedowns of £1.2 billion offset by £1.1 billion gains on the fair valuation of issued notes. In October, credit spreads narrowed substantially leading to a reversal of £1 billion gains on the fair valuation of issued notes. Highlights of the Capital Raising Key highlights of the Capital Raising include: • An issue of £3 billion of Reserve Capital Instruments (‘RCIs’) to Qatar Holding and entities representing the beneficial interests of HH Sheikh Mansour Bin Zayed Al Nahyan, a member of the Royal Family of Abu Dhabi (‘HH Sheikh Mansour Bin Zayed Al Nahyan’). The RCIs will pay an annual coupon of 14% until June 2019. In conjunction with this issue, Qatar Holding and HH Sheikh Mansour Bin Zayed Al Nahyan have also subscribed (for a nominal consideration) for warrants (‘Warrants’) to subscribe at their option for up to 1,516,875,236 new ordinary shares of Barclays PLC (‘Ordinary Shares’) with an exercise price of 197.775 pence per share (equal to the Average Barclays Closing Price) or £3 billion in aggregate, representing 18.1% of Barclays existing issued ordinary share capital. The Warrants are exercisable at any time for a five year term from the date of issue. • An issue of £2.8 billion of Mandatorily Convertible Notes (‘MCNs’) to Qatar Holding, Challenger Universal Limited (‘Challenger’) and HH Sheikh Mansour Bin Zayed Al Nahyan, and a further issue of up to £1.5 billion of MCNs to existing institutional shareholders and other institutional investors by way of an accelerated non-underwritten bookbuild placing. The MCNs all carry the same terms and conditions. The MCNs will pay an annual coupon of 9.75% until conversion into Ordinary Shares, which will occur on or before 30th June 2009. Conversion will result in the issue of 2,805,396,799 new Ordinary Shares, representing 33.5% of Barclays existing issued ordinary share capital. The conversion price is 153.276 pence, a discount of 22.5% to the Average Barclays Closing Price. • Ordinary Shares to be issued upon conversion of the MCNs, and, as the case may be, the exercise of Warrants, will increase Barclays equity tier one ratio, while the RCIs will qualify as innovative tier one capital to the extent they are within the innovative tier one allowance as defined by the FSA. Investors Qatar Holding has agreed to invest £500 million in MCNs and £1.5 billion in RCIs, and has subscribed for Warrants to purchase up to £1.5 billion of Ordinary Shares. Challenger has agreed to invest £300 million in MCNs. Assuming the conversion of their MCNs and full exercise of their Warrants, and taking into account their existing holdings of Barclays shares, Qatar Holding would hold 1,607,402,170 Ordinary Shares, representing 12.7% of the fully diluted share capital (assuming the issue and conversion of £4.3 billion of MCNs and full exercise of Warrants) (the ‘Fully Diluted Share Capital’) and Challenger would hold 353,704,737 Ordinary Shares, representing 2.8% of the Fully Diluted Share Capital. HH Sheikh Mansour Bin Zayed Al Nahyan has agreed to invest £2 billion in MCNs and £1.5 billion in RCIs, and subscribed for Warrants to purchase up to £1.5 billion of Ordinary Shares. Assuming the conversion of their MCNs and full exercise of their Warrants, HH Sheikh Mansour Bin Zayed Al Nahyan would be beneficially entitled to 2,063,273,339 Ordinary Shares, representing 16.3% of the Fully Diluted Share Capital. Page 3 of 25 Barclays has appointed Barclays Capital, Credit Suisse and JPMorgan Cazenove as joint bookrunners to undertake an accelerated non-underwritten bookbuild placing of up to a further £1.5 billion of MCNs with existing institutional shareholders and other institutional investors (the ‘Institutional Placing’). John Varley, Group Chief Executive of Barclays, said: “The capital raising announced today enables Barclays to meet the capital issuance plan agreed with the UK authorities following the decision by the FSA to increase the capital ratio requirements for all UK banks. We are pleased to have the continuing support of Qatar Holding and Challenger, and to welcome HH Sheikh Mansour Bin Zayed Al Nahyan as a substantial new investor, as well as enabling broad participation by existing institutional shareholders. Today’s capital raising provides certainty and speed of execution, and combined with the strong thirdquarter performance in a volatile operating environment enables us to continue to implement our strategy and build our business by serving clients and customers around the world.” Marcus Agius, Chairman of Barclays, said: “Given the continuing uncertainties in world capital markets, the Board of Barclays resolved to satisfy the capital raising requirements agreed with the UK authorities without delay. This we have done. The Board believes that this maintains Barclays as a strong, independent and well capitalised bank.” Page 4 of 25 Details of the Capital Raising 1. Introduction The Board of Directors of Barclays today announces a Capital Raising to raise up to £7.3 billion of new capital through the issue of MCNs, RCIs and Warrants. Capitalised terms used in this announcement have the meanings given in Appendix 1. 2. Reasons for the Capital Raising On 13th October 2008, Barclays announced that, following the decision of the FSA to set stronger capital ratio requirements for all UK banks, the Board had agreed a plan to increase the capital of Barclays through measures including the raising of over £6.5 billion of tier one capital, of which £3 billion would be in the form of preference shares and the remainder would be in the form of Ordinary Shares. In common with other large UK-headquartered banks, Barclays has had detailed discussions with the FSA regarding its balance sheet and capital position. Target capital levels have been agreed with the FSA which include consideration of a number of possible stress scenarios. The Capital Raising, together with other measures management is taking in the business to improve Barclays capital position, are in accordance with the plans agreed with the FSA. The Board has completed a thorough exploration of possible capital raising structures and arrangements to meet its commitment to the FSA. A fully pre-emptive offer to all Shareholders would require a period of market risk exposure of up to some two months which the Board believes represents a risk that is unacceptable to shareholders at this time. The Board has concluded that the Capital Raising provides the best combination of financial terms, certainty and speed for Barclays, which are important given current market conditions. The Board attaches a high degree of importance to pre-emption rights generally and has sought to recognise these to the extent possible in the context of the Capital Raising by giving institutional investors the ability to participate in the issue of MCNs. The objective of the plan to raise tier one capital via the issue of preference shares will be met through the issuance of the RCIs. Coupons on the RCIs should be tax deductible for Barclays and the RCIs qualify as tier one capital, within the innovative tier one allowance as defined by the FSA. The issuance of MCNs rather than Ordinary Shares enables certainty of commitment of the required ordinary equity within a short period of time and permits the immediate economic participation of certain significant investors, prior to the receipt of any required regulatory approvals. Barclays remains committed to mobilise an additional £1.5 billion in equity resources from balance sheet and operational efficiencies referred to in the announcement of 13th October 2008. Barclays also announced on 13th October 2008 that, in the light of the new capital ratios agreed with the FSA and in recognition of the need to maximise capital resources in the current economic climate, the Board has concluded that it would not be appropriate to recommend the payment of a final dividend for 2008. Page 5 of 25 The Board estimates that, taking into account the proceeds of the Capital Raising, on a pro forma basis (assuming the issue and full conversion of £4.3 billion of MCNs) Barclays would have reported a tier one ratio of 11.3% and an equity tier one ratio of 7.6% as at 30th June 2008. This excludes the impact of any future exercise of the Warrants. 3. Details of the Mandatorily Convertible Notes The MCNs will carry an annual coupon of 9.75%, payable quarterly in arrears, until conversion into Ordinary Shares. The MCNs will have a mandatory conversion date of 30th June 2009. Conversion of any outstanding MCNs will occur on the mandatory conversion date and will be at the holder’s option up until the fifth business day prior to such date. The conversion price is fixed at 153.276 pence, a discount of 22.5% to the Average Barclays Closing Price (subject to certain limited adjustment events summarised in Appendix 2). Qatar Holding has agreed to subscribe for £500 million of MCNs and Challenger has agreed to subscribe for £300 million of MCNs. HH Sheikh Mansour Bin Zayed Al Nahyan has agreed to subscribe for £2 billion of MCNs. Barclays Capital, Credit Suisse and JPMorgan Cazenove, who are acting as joint bookrunners, will undertake an accelerated non-underwritten bookbuild placing of up to an additional £1.5 billion of MCNs to existing institutional shareholders and other institutional investors. Books are open with immediate effect and are expected to close at 5:00pm today but may be closed earlier or later at the discretion of the joint bookrunners and without further notice. Further details of the MCNs and the bookbuild placing are set out in Appendices 2 and 3. The issue of the MCNs is conditional upon receipt of necessary shareholder approvals. Subject to obtaining the required shareholder consents, the MCNs are expected to be issued on the third business day following the General Meeting. The MCNs will not qualify as capital until conversion into Ordinary Shares. Applications will be made for the MCNs to be admitted to the Official List of the UKLA and to trading on the London Stock Exchange’s regulated market. Barclays has undertaken to apply for the Ordinary Shares to be issued upon conversion of the MCNs to be admitted to listing on the Official List of the UKLA and admitted to trading on the London Stock Exchange’s regulated market. 4. Details of the Reserve Capital Instruments and Warrants The RCIs are perpetual securities, redeemable in whole (but not in part) at the option of Barclays Bank PLC from June 2019. The RCIs will pay an annual coupon of 14% until June 2019 and 3-month LIBOR plus 13.4% thereafter. The initial coupon represents a cost to Barclays of approximately 10% on an after-tax basis. The RCIs will qualify as innovative tier one capital to the extent they are within the innovative tier one allowance as defined by the FSA. Qatar Holding and HH Sheikh Mansour Bin Zayed Al Nahyan have each agreed to subscribe for £1.5 billion of RCIs. In conjunction with this subscription, Qatar Holding and HH Sheikh Mansour Bin Zayed Al Nahyan have each subscribed (for a nominal consideration) for Warrants to subscribe for up to £1.5 billion of new Ordinary Shares. The exercise price of the Warrants will be 197.775 pence , equal to the Average Barclays Closing Price, subject to certain antidilutive provisions. The Warrants are exercisable at any time for a five year period following issue. Page 6 of 25 The issue of the RCIs is conditional upon receipt of necessary shareholder approvals. Subject to obtaining the required shareholder consents, the RCIs are expected to be issued on the third business day following the General Meeting. The Warrants were subscribed for unconditionally today but exercise is conditional upon obtaining necessary shareholder approvals and issuance of the RCIs. The original subscribers for the Warrants are entitled to a reduction in the warrant exercise price in the event that Barclays issues further Ordinary Shares by way of a rights issue between 1 July 2009 and 30 June 2011 and the share price at the time of the rights issue is less than 197.775 pence. Applications will be made for the RCIs and the Warrants to be admitted to the Official List of the UKLA and to trading on the London Stock Exchange's regulated market (or, in the case of the Warrants, an alternative recognised investment exchange or regulated market). The Warrants may be traded separately from the RCIs. 5. Enlarged share capital Conversion of the MCNs would result in the issue of 2,805,396,799 new Ordinary Shares, equivalent to 33.5% of Barclays existing ordinary share capital (assuming issue and conversion of £4.3 billion of MCNs). Full exercise of the Warrants would result in the issue of a further 1,516,875,236 new Ordinary Shares, equivalent to 18.1% of Barclays existing ordinary share capital. 6. Commissions and fees Net proceeds of the Capital Raising are expected to be up to £7.0 billion, after commissions, fees and expenses of £0.3 billion. Page 7 of 25 Qatar Holding, Challenger and HH Sheikh Mansour Bin Zayed Al Nahyan will each receive a commission of 4 per cent. of the principal amount of the MCNs for which they have respectively agreed to subscribe. Qatar Holding and HH Sheikh Mansour Bin Zayed Al Nahyan will each receive a commission of 2 per cent. of the principal amount of the RCIs for which they have respectively agreed to subscribe. In addition, Qatar Holding will receive a fee of £66 million for having arranged certain of the subscriptions in the Capital Raising. Credit Suisse and JPMorgan Cazenove will each receive a fee of 0.75 per cent. of the principal amount of the MCNs placed in the Institutional Placing. Credit Suisse and JPMorgan Cazenove will each receive a fee of £900,000 (£1.8 million in total) in respect of their roles assisting Barclays in relation to the RCIs. Barclays will pay the commissions on the due date for issue of the MCNs and RCIs. The commissions are payable even if the proposed resolutions are not passed at the General Meeting. 7. Current trading and prospects Barclays has also today released its Interim Management Statement stating that Group profit before tax for the nine months ended 30th September 2008 was slightly ahead of 2007. Income growth was strong, and costs grew broadly in line with the rate of income growth. Impairment charges grew at a similar rate to the first half of the year. Third quarter 2008 results included a preliminary estimate of the net benefits arising on the acquisition of Lehman Brothers North American investment banking and capital markets businesses; and net losses from credit market writedowns of £129 million, comprising writedowns of £1.2 billion offset by £1.1 billion gains on the fair valuation of issued notes. In October, credit spreads narrowed substantially leading to a reversal of £1 billion gains on the fair valuation of issued notes. 8. Dividend policy As announced on 13th October 2008, in the light of the new capital ratios agreed with the FSA and in recognition of the need to maximise capital resources in the current economic climate, the Board has concluded that it would not be appropriate to recommend the payment of a final dividend for 2008. The Board intends to resume dividend payments in the second half of 2009, at which time it is intended to pay dividends quarterly. 9. Approvals The issue of the RCIs and the MCNs, and exercise of the Warrants, are conditional upon receipt of the requisite shareholder approvals. The Board has resolved to convene a General Meeting on or around 24th November 2008 to approve, amongst other matters, an increase in the Company’s authorised ordinary share capital sufficient to permit completion of the Capital Raising, and to grant authorities for the issue of new Ordinary Shares in accordance with the terms of the MCNs and the Warrants. Page 8 of 25 A circular convening the General Meeting will be sent to Shareholders on or around 8th November. Copies of the circular will be forwarded to the FSA and will be available for inspection at the UKLA's Document Viewing Facility, which is situated at: The Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS. The Board will unanimously recommend that shareholders vote in favour of all the resolutions to be proposed at the General Meeting, as the Directors intend to do in respect of their own beneficial holdings. The acquisition by Qatar Holding, Challenger and HH Sheikh Mansour Bin Zayed Al Nahyan of the full amount of the shareholdings resulting from the conversion of their MCNs and the exercise of their Warrants will require certain approvals to be obtained from, and filings to be made with, regulators and other governmental authorities in a number of countries in which Barclays operates. Qatar Holding, Challenger and HH Sheikh Mansour Bin Zayed Al Nahyan have undertaken to Barclays not to deliver a conversion notice under the MCNs or exercise their rights under the Warrants to the extent that certain relevant approvals and filings have not been obtained and made. In addition, the terms of the MCNs envisage that where a holder of MCNs does not deliver a conversion notice prior to the mandatory conversion of the MCNs, the Ordinary Shares in Barclays that would otherwise have been issued to that holder on such conversion will be issued to the trustee of the MCNs and sold for that holder’s benefit. 10. Expected timetable of principal events The expected timetable of the principal events is set out below: Placing of MCNs to institutional investors 31st October 2008 Posting of Barclays shareholder circular 8th November 2008 General Meeting 24th November 2008 Issuance of MCNs and RCIs 27th November 2008 Mandatory conversion date of MCNs 30th June 2009 Last date for exercise of the Warrants 31st October 2013
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