Investors' £4.5bn deal to shore up capital at Barclays

Barclays has agreed a deal with five sovereign wealth funds that will see the investors pump up to £4.5bn into the bank. Barclays executives have spent much of the past week in talks with the investors hammering out details of the fundraising after the bank came under pressure from regulators to improve its capital strength.

Under the deal announced yesterday, Barclays will issue 1.57 million shares to raise £4.5bn "to strengthen its capital base and operate capital ratios that are ahead of its targets". The group said the move would also enable Barclays "to capture opportunities for growth", with about half the money slated for that objective.

The money is coming from five Middle-Eastern and Far-Eastern investors, as well as a number of existing shareholders, who have been offered the opportunity to subscribe for new shares.

The biggest new name on Barclays' share register will be the Qatar Investment Authority, a $40bn sovereign wealth fund, which has agreed to invest up to £1.7bn, translating into a potential stake of 7.7 per cent. A separate fund, Challenger Universal, run by the QIA vice-chairman, Sheikh Hamad bin Jassim bin Jabr al Thani, will invest an additional sum of up to £533m.

The Qatari investors will be joined by Sumitomo Mitsui Banking Corporation, a division of one of Japan's largest financial services groups, which has agreed to invest £500m. Temasek Holdings of Singapore, which already has 2 per cent of Barclays, and China Development Bank, which owns 3.1 per cent, will also invest further sums. The two groups agreed to sizeable capital injections in order to maintain their stakes at current levels, despite being understood to be unhappy with the performance of their holdings since they bought into the UK group last year. Both groups have seen their initial investments halve in value, but Temasek will invest up to £200m more, with the Chinese bank offering £136m.

Barclays said: "The board believes that this is an important endorsement of Barclays' long-term strategy and vision, and underscores the confidence of these institutions in Barclays and in its management team." A spokesman said the bank had no intention of cutting its dividend.

The Qatari investors' buy-ins will be reduced by the extent to which other existing Barclays shareholders choose to take up the £1.3bn worth of shares they have been offered under a "clawback" plan. The agreement in effect means that QIA and Challenger are underwriting this part of the share issue.

The Association of British Insurers backed the move. Peter Montagnon, director of investment affairs, said: "The issue, with clawback, is in keeping with the pre-emption principle and allows the bank to raise substantial capital over a relatively short time frame. This shows what can be done and could be a useful pointer for others in the future."

Barclays' move follows the credit turmoil in the world markets, which has seen banks turn to shareholders to bolster their balance sheets and capital strength. Barclays has had to write down £1.7bn on credit assets this year. The extra cash will bring its tier one capital ratios up ahead of previous targets to 7.25 per cent, and the bank said it would look to keep its ratios ahead of long-term targets "particularly while current market turbulence persists".

The group was also bullish about its growth prospects with the capital, saying it would use the cash to strengthen global retail and commercial banking in existing markets as well as boost growth in Russia and Pakistan. It will also invest in existing investment banking operations.

Many of the world's largest banking groups hit by the credit crunch have turned to wealthy overseas investors to bolster their balance sheets. Temasek has previously bought into Merrill Lynch and Standard Chartered, while the QIA has invested in Credit Suisse. China Investment Corporation has a stake in Morgan Stanley, while the Government of Singapore Investment Corporation has holdings in UBS, Citigroup and Merrill.