By Joanna Hartley
UPDATE 1: International Petroleum Investment Company doubles its investment in six months.
Abu Dhabi has sold an 11 percent stake in Barclays making $2.5bn from an investment that helped the British bank through the financial crisis and raising fears that the rally in bank shares may be over.Traders said on Tuesday the Abu Dhabi government-owned International Petroleum Investment Company (IPIC) was selling about GBP3.5bn pounds worth of instruments that are due to convert into Barclays shares by end of June.
The sale price near 267 pence a share, according to dealers, represents a 16 percent discount from Monday's close of 316.25p.
Khadem Al Qubaisi, managing director of IPIC, said: “The Emirate of Abu Dhabi intends to maintain a close commercial and strategic relationship with Barclays in the future. The decision to dispose of some of its interests in Barclays reflects the focus of IPIC’s long-term investment strategy on hydrocarbon-related opportunities.”
Shares in Barclays fell 15 percent to 268p by 0922 GMT to be the biggest FTSE 100 faller.
Other bank shares fell too as the sale soaked up demand for stock.
The sale also raised fears that other big Barclays investors may also look to take profits, and that other sovereign wealth funds might be looking to exit the investments they have made.
Barclays raised funds from Qatar, China, Japan and Singapore investors last year.
"This tactical move brings into question any foreign investment in major companies - in particular investment from the Middle East," said Manoj Ladwa, senior trader at London spread betters ETX Capital.
"I would expect further falls from companies with similar exposure."
"It's clearly a negative signal for the banking sector," said David Thebault, head of quantitative sales trading at Global Equities in Paris.
"After stepping in at the beginning of the credit crisis to buy stakes in troubled banks, these guys (Abu Dhabi's IPIC) are now saying: 'the recovery rally in financial stocks is over and the shares are now ripe for profit taking'."
Singapore's state investor Temasek owns a stake, and its incoming Chief Executive Charles Goodyear may cut the fund's large holdings in banks as he reallocates money to energy and consumer sectors, Nomura analysts said in a report released earlier on Tuesday.
Barclays and Credit Suisse, which was handling the sale, declined to comment on the placing price.
IPIC, an investment vehicle of the Abu Dhabi royal family, will have almost doubled its money since buying the mandatorily convertible notes (MCNs) in October, when Barclays raised funds privately rather than take a handout from the UK taxpayer.
The fundraising angered existing shareholders at the time.
They said the Middle East investors were offered attractive terms.
The MCNs are due to convert into about 1.3 billion shares at 153p per share before the end of this month.
Based on an enlarged Barclays share capital including other MCNs sold last year but excluding warrants held by Abu Dhabi and others, the stake sold represents about 11 percent of the British bank.
Barclays, which escaped the government rescue safety net that caught other UK banks earlier this year, has seen its shares soar more than five-fold in the last three months, after Britain's financial regulator said its capital was adequate.
IPIC said it was also considering selling GBP1.25bn of another capital instrument it bought at the same time - reserve capital instruments that pay annual interest of 14 percent.
Abu Dhabi invested up to GBP4.75bn in Barclays in October, including GBP1.5bn on warrants exercisable at 197 pence.
Its stake will fall to about five to six percent stake, with just the exercised warrants, from just over 16 percent.
John Varley, Barclays' chief executive, said: "In the period since IPIC took a position in Barclays in 2008 we have been able to broaden our strategic and commercial relationship, and we look forward to developing this further going forward."For all the latest banking and finance news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.