Keep hands off Barclays, Arabs warn Government

With shares in Barclays under severe pressure since Gordon Brown's second banking-industry bailout earlier this week, there has been increasing speculation the bank will have to be rescued and part-nationalised by the Government.

But Barclays' major investors, the Abu Dhabi royal family, have released the detail of documentation which reveals that if the UK Government were to make a move, it would trigger a clause which would not only deliver the bank into the hands of the Middle Easterners but also stipulates that the taxpayer would have to pay way over the current price for the new shares in the bank.

Last autumn, when the Government was taking equity stakes to rescue the Royal Bank of Scotland and the Lloyds TSB-HBOS banking combine, Barclays refused state help. Instead it went to an Abu Dhabi and Qatari consortium fronted by Sheikh Mansour bin Zayed Al Nahyan, the Abu Dhabi royal who is bankrolling Manchester City Football Club, and is advised by the British financier Amanda Staveley.

A total of £7 billion was injected into Barclays, giving Sheikh Mansour and his interests a 16.3% stake in the bank, with the interests of Qatari state investors' stakes amounting to 15.5%

Their interests are held in a mix of preference shares and convertible notes. However, a largely hitherto-overlooked clause in the agreement has now been spotlighted after the leaking of a letter that stressed the importance of the negotiated deal.

The letter referring to the clause negotiated by Staveley, who is said to have pocketed £40 million from brokering the deal, states: "If Barclays does have to issue new shares at a price which is, for example, half our agreed price, then you automatically get twice as many shares for the money you have already invested.

"If this provision comes into effect, you could potentially end up owning significantly more of Barclays at no extra cost."

The documentation reveals that apart from triggering the free shares to the Middle East consortium, any new equity investment would have to be paid at 153p a share — that compares with the bombed-out Barclays share price of 63.8p, down 2.3p to yet a another new low on the day. The agreement runs until the end of June.

Sources indicate that the clause in such a deal is normal protection for the purchaser who would not want to see its stake diluted by a subsequent sale of equity to another party on more favourable terms.

Barclays' shares, like those of its rivals and the newly enlarged and renamed Lloyds Banking Group, have been battered since the turn of the year.

They have lost further ground this week because of the apparent market sentiment that investors expect them ultimately to fall into the hands of the state.

Barclays' shares are now trading at barely a third of where they were at the start of last week.