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Fri 14 Nov 2008 01:43 PM

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No renegotiation of Barclays deal - source

UPDATE 1: Talks held with Qatar, Abu Dhabi, but no new deal in face of investor revolt.

The terms of British bank Barclays' deal to raise over 5 billion pounds ($7.5 billion) with investors in the Middle East will not be renegotiated, a person familiar with the matter said on Thursday.

Barclays has faced a backlash among some shareholders who are unhappy that investors in Qatar and Abu Dhabi have been offered attractive terms to provide the bank with capital, prompting speculation the terms of the fundraising could be renegotiated.

A person familiar with the matter said discussions had been held but there would be no renegotiation of the terms.

Barclays investors are due to vote on Nov. 24 on plans to raise cash from the sale of complex capital instruments to investors in Abu Dhabi and Qatar. The proceeds make up most of a 7 billion-pound fundraising announced last month.

Much of the capital is being raised from the sale of reserve capital instruments (RCIs) that will pay annual interest of 14 percent until June 2019.

Barclays investors were advised to abstain from the vote earlier on Thursday by a top advisory service, citing the high cost and dilutive nature of the plan.

Corporate governance adviser RiskMetrics Group said investors should abstain due to the large discount that shares are being offered at, the high cost and the dilutive nature of the capital raising, compared with funding offered by the UK government.

It said, however, that "it would not be in shareholders' best interest to reject this proposal outright".

US-based RiskMetrics is the top investor advisor service with about 1,600 clients globally, including pension funds, investment managers and hedge funds.

Some Barclays investors are unhappy the bank will pay more under the terms of its fundraising than if it had taken government funds.

The bank will have to pay slightly more interest, probably over a longer period, than if it had taken funds under the state rescue plan, and is not giving other shareholders the chance to participate on the same terms.

Its shares fell 6.2 percent to 157.7 pence on Thursday, one of the biggest fallers in a weak European bank index.

Top investors Legal and General Investment Management and Aviva Investors may vote against the plan, the UK's Financial Times reported on Wednesday.

Other investors have told newswire Reuters they had concerns about the plan, but the price could be worth paying to keep its commercial freedom and not leave the UK government with a stake.

Lawrence Creatura, portfolio manager at Clover Capital Management, said tough market conditions meant Barclays had to pay up to raise funds. Clover is a top-20 investor in the bank with a 1.5 percent stake, according to Thomson Reuters data.

"Capital is scarce, and for that reason pricing is aggressive. It is rational to offer attractive pricing to raise capital in this environment," Creatura said. Barclays was not acting irrationally or violating fiduciary duty, he added.

Barclays executives are on a roadshow talking to investors about the capital raising and are expected to meet the Association of British Insurers on Friday to discuss the issue.

British banks were told by regulators last month to hold more capital to prepare for an economic downturn.

Barclays said a fully pre-emptive offer to all shareholders in current difficult markets would have been too risky. (Reuters)

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