NEW YORK/LONDON Qatar's sovereign wealth fund sold the last of the warrants it owns in Barclays on Monday, notching up a gain of more than 1.7 billion pounds from the controversial fundraising deal it struck with the bank four years ago.
The warrants, which convert into shares, were sold to Deutsche Bank AG and Goldman Sachs Group Inc.
On Monday the banks sold up to 303 million Barclays shares, worth 740 million pounds, at 244 pence apiece, a 4 percent discount to Friday's closing share price and at the bottom of an indicated range of 244-248 pence. By 1500 GMT Barclays shares were down 5.1 percent at 241.3 pence, the biggest faller in the European bank index.
Qatar Holdings will keep its 6.7 percent stake in Barclays and make a profit of around 170 million pounds from the "monetizing" of the warrants.
The warrants have not yet been converted, but the owners can do so at 198 pence per share in the next year. Conversion would bring in 750 million pounds for Barclays and lift its core Tier 1 capital ratio by about 20 basis points, but it would dilute the holding of shares by other investors.
The warrants were part of a controversial fundraising by Barclays at the height of the financial crisis in 2008, when it raised billions of pounds from investors in Qatar and Abu Dhabi to avoid taking emergency funds from the UK government.
But existing shareholders said the terms offered to the new investors were too attractive, especially the warrants they were given as part of the deal.
Barclays is being investigated by Britain's Serious Fraud Office (SFO) and Financial Services Authority (FSA) for the payments made to Qatar as part of the 2008 fundraising.
Qatar is one of the most active sovereign wealth funds with assets of more than $100 billion and has snapped up significant stakes ranging from miner Xstrata to German sports car maker Porsche to oil major Shell.
Qatar made two big bets on Barclays in June and October 2008 which totalled about 5.3 billion pounds, including the later payments for the conversion of warrants.
Barclays shares are near the average price Qatar paid then, but it has profited from converting 1.5 billion pounds of warrants - half of which it cashed a year later at a 600 million pound profit - plus 1.5 billion pounds of capital instruments that pay 14 percent interest until 2019 - worth about 840 million pounds so far.
Qatar was also paid commissions and fees worth 116 million pounds alongside the October 2008 deal.
According to Reuters estimates that amounts to a profit of about 1.7 billion pounds in total.
Qatar Holding is part of Qatar Investment Authority, which was set up by the state in 2005 to diversify investments away from oil and gas into new assets.
The sovereign wealth fund said on Sunday that Barclays was still a long term strategic investment and an important commercial partner. "We remain a supportive strategic investor in Barclays, and maintain our confidence in the long-term prospects for the business," its CEO Ahmad Al-Sayed said.
Barclays has had a torrid five months after being handed a $450 million fine by U.S. and British authorities to settle allegations that it manipulated key interest rates - prompted the resignation of its chairman and chief executive - and is under investigation on several other issues.
New CEO Antony Jenkins is assessing the future shape of the bank as part of a strategic review, which is expected to see him shrink the investment bank. Some of the bank's biggest investors want Jenkins to take an axe to the investment bank, the Financial Times said on Monday.
Abu Dhabi, the other big investor alongside Qatar in October 2008, sold warrants in 2010, while also keeping most of its shares in the bank.
(Additional reporting by Alex Chambers and Kylie MacLellan; Editing by Sophie Walker)