Barclays to sell £4.3 billion mandatory convertibles to yield 9.75%; £1.5 billion for institutional investors

By Rebecca Melvin

New York, Oct. 31 - Barclays said it plans to issue £4.3 billion of mandatory convertible notes, of which £1.5 billion was being offered Friday to institutional investors, according to a news release.

The mandatories, set to be converted by June 20, 2009, priced to yield a coupon of 9.75% with a 22.5% conversion discount to Barclays' average closing share price on Oct. 29-30.

Of the total mandatory issue, £2 billion are to be purchased by HH Sheikh Mansour Bin Zayed Al Nahyan, a member of the royal family of Abu Dhabi; £500 million are to be purchased by Qatar Holdings; and £300 million of the convertibles are to be purchased by Challenger Universal Ltd.

There is a concurrent issue of £3 billion of reserve capital instruments with an associated issue of warrants.

The issues are subject to shareholder approvals.

If the required consents are obtained, the convertibles are expected to be issued on Nov. 27, the third business day following a general meeting.

All together Barclays is raising £7.3 billion to meet higher capital targets by the U.K. Financial Services Authority for all U.K. banks.

The capital raising will allow Barclays to achieve tier one and equity capital issuance commitments to the FSA ahead of a previously announced timetable.

The 9.75% convertible notes will be mandatorily convertible within eight months by June 30, 2009 at a conversion price fixed at 153.276p, a discount of 22.5% to Barclays average share price of 197.775p on Oct. 29-30.

Barclays Capital, Credit Suisse and JPMorgan Cazenove are acting as joint bookrunners.

The mandatories will not qualify as capital until conversion into ordinary shares.

The offering of reserve capital instruments and warrants are perpetual securities, redeemable in whole at the option of Barclays Bank plc from June 2019.

The reserve capital instruments will yield 14% until June 2019 and three-month Libor plus 12.4% thereafter.

Qatar Holding and HH Sheikh Mansour Bin Zayed Al Nahyan have each agreed to subscribe for £1.5 billion of the reserve capital instruments.

Conversion of the mandatories 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 the notes), the release said.

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.

Barclays also announced interim profit before tax for the nine months ended Sept. 30 was slightly ahead of the same period of 2007.

Third-quarter 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 write-downs of £129 million, comprising write-downs 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

Barclays is a London-based bank.

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