A massive bet on Barclays is living up to its rich billing for Qatar. The complex 3.4 billion pound investment in the UK bank has earned a 19 percent internal rate of return for the sovereign fund, according to a Breakingviews calculation. That’s pretty good, factoring in the huge risk of propping up a universal bank at the height of the financial crisis. But it will grate for Barclays shareholders who resented the deal in the first place.
To re-cap, Barclays issued a happy meal of capital instruments to the Qatar Investment Authority and wholly-owned subsidiary Qatar Holding in 2008. First came a placing of shares in the summer. In October, there followed a mandatory convertible, a high-yield bond and a slug of warrants.
Qatar has been active in harvesting value. It extracted roughly 1.15 billion pounds in the first year. That mainly comprised proceeds of 700 million pounds from exercising half of its warrants and 80 million pounds from disposing shares. It also received fees worth over 115 million pounds and coupons of 260 million pounds.
In the meantime, coupons from its high-yield bond have been worth another 630 million pounds. The sale of warrants last month potentially extracted a further 121 million pounds.
Qatar has sat on rest of its holding. Together with shares received on conversion of the mandatories in 2009, the total slug of stock remaining is worth almost 2 billion pounds at current prices. The high-yield bonds are worth the same again on a present-value basis.
The calculation for Qatar’s returns doesn’t factor in a concurrent but much smaller investment in Barclays by an entity linked to the emirate’s prime minister – it’s unclear how that was managed. Still, the near-20 percent compound annual return feels about right for a punt on a bank that might have needed nationalising without the capital raised.
Qatar’s investment has been a big success compared to similar bets on banks by rival sovereign funds, some of which lost billions. An ongoing probe by regulators into fees relating to the capital-raising is embarrassing and takes off some of the shine. But, for now, Qatar is sitting pretty.