Barclays Rights Issue Gets Strong Response

By Mani
Updated on

Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) said investors bought 94.6 percent of the shares in its rights offering, with the balance offered in the wider market by underwriters.

Barclays PLC (ADR) (NYSE:BCS) (LON:BARC)’s issue of new shares at a deeply-discounted price marks the biggest rights issue seen in London since 2009.

PRA’s Mandate

Britain’s third biggest bank and the sixth largest in Europe planned its rights issue of stock and balance through contingent capital in response to Prudential Regulatory Authority’s directive.

PRA, an arm of Bank of England, said last July that Barclays Plc needed an extra 12.8 billion pounds to strengthen its capital reserves against potential market shocks. The higher amount is primarily due to tougher European rules on the way banks measure risks.

PRA gave Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) one year to fill the gap, necessitating the bank to seek shareholders’ support for its rights issue.

PRA asked Barclays to increase the amount of equity it holds against total assets, a measure called the leverage ratio, which provides banks with a cash buffer in case of future financial crises.

Deep Discount

Barclays Plc offered the rights to its shareholders to buy one share for every four shares held at 185 pence per share, marking a discount of 40 percent to its July price.

The bank in total received acceptances in respect of 3,046,197,378 new ordinary shares, representing 94.63 percent of the total number of shares offered to shareholders.

Barclays PLC (ADR) (NYSE:BCS) (LON:BARC) raised through the rights issue about 5.6 billion pounds, with 3.05 billion shares sold at 185 pence apiece.

Barclays indicated the rights issue and separate measures to shrink parts of its business should push its ratio of equity to assets above 3 percent, the minimum mandated by UK bank supervisors to achieve by June 2014.

The contingent capital bonds that the bank is raising for £ 2 billion would automatically convert to equity if the bank’s capital falls below a certain threshold limit.

Barclays PLC (ADR) (NYSE:BCS) (LON:BARC)’s shareholders were given four options in the fundraising: take up the rights, sell the rights, sell enough rights to cover the cost of taking up the remainder, or do nothing.

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