Reuters: Mergers News: Abu Dhabi may seek sweeteners for RBS deal

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Abu Dhabi may seek sweeteners for RBS deal Mar 27th 2012, 16:38 By Steve Slater LONDON, March 27 | Tue Mar 27, 2012 12:38pm EDT LONDON, March 27 (Reuters) - If Abu Dhabi's sheikhs or sovereign funds opt to buy some of the British taxpayer's stake in Royal Bank of Scotland, the purchase price for the shares could be less important than any sweeteners attached to a deal. That's the message from its successful but complex bet on Barclays in October 2008, which helped save the UK bank from a state rescue and earned a hefty profit for the Middle East investor. Britain is in talks to sell some of its 82 percent stake in RBS to Abu Dhabi investors, sources told Reuters. They said talks have been going on for months, but if a deal is reached it will probably take months longer. Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi's ruling family and the owner of English soccer team Manchester City, took his 5 billion pounds ($8 billion) gamble on Barclays three years ago alongside investors from Qatar. It was a controversial deal, slammed by some shareholders for being too generous to the new investors. But it was struck in the midst of the financial crisis, so was potentially risky for Sheikh Mansour, while Barclays viewed it as a deal worth doing to stay out of state hands. A year earlier Abu Dhabi made a disastrous $7.5 billion investment in U.S. bank Citigroup, prompting it to try to scrap it in 2009 or get $4 billion in damages. The Abu Dhabi Investment Authority (ADIA) said Citigroup misled it about the state of its finances, but its claims were rejected by a U.S. court last October. Sheikh Mansour and associated vehicles have made about 3 billion pounds on the Barclays deal, based on estimates of its sales so far and the value of the 7 percent stake still held. Abu Dhabi could have owned as much as 16.3 percent of Barclays, but has pocketed profits along the way and entered a hedging deal with Nomura to lock in gains. Barclays shares were trading near 198 pence in October 2008 but are now one quarter higher at 251p. The investment was not straightforward, however. It included mandatorily convertible notes (MCNs) paying annual interest of 9.75 percent until conversion into Barclays shares at 153p; reserve capital instruments (RCIs) paying 14 percent annual interest until June 2019; and warrants allowing the purchase of more shares at 198p. Sheikh Mansour also received a commission of 4 percent on the amount of the MCNs and of 2 percent on the RCIs, worth 110 million pounds. Other investors in Barclays, which also raised funds from China, Japan and Singapore in 2007/08, have not fared so well. Singapore's Temasek pumped more than 1 billion pounds into Barclays but sold out earlier, probably losing more than 800 million pounds, Reuters estimated. Link this Share this Digg this Email Reprints

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