Abu Dhabi has moved to consolidate its shareholding in Barclays, the British bank with which it has had a close relationship since 2008.
In a statement to the London Stock Exchange, PCP Gulf Invest 3, an investment vehicle connected with the emirate, announced in a written statement that it had "entered into derivative transactions with Nomura International in order to protect the value of the remaining 131,602,175 warrants it holds in Barclays, and complete the hedging of PCP3's entire interest in Barclays warrants and ordinary shares".
"In connection with its related hedging activities, Nomura will simultaneously execute a market placing of approximately 220 million shares. "PCP3 will exercise the 131,602,175 warrants forthwith, following which the corresponding number of shares issued upon exercise will become subject to the hedge.
"The exercise and hedging mark the final completion of a strategy that locks in a significant gain on Barclays shares for PCP3 while retaining further upside. PCP3 will seek to continue to maintain a close commercial and strategic relationship with Barclays in the future," the statement added.
The effect of the complex set of transactions is to protect PCP from any future fall in the value of its Barclays investment while allowing it to participate in any profit that would arise if the shares rise in value. The transactions involve the sale by Nomura of 220 million shares in Barclays to institutional investors via a placing - a mechanism by which buyers agree to take a large number of shares at a set price - at between 290 pence and 295p, a slight discount to the opening price of 304p yesterday. The shares closed down 2.24 per cent at 297p.
A person close to the transaction, requesting anonymity, said the conversion of the warrants also had the effect of marginally raising Barclays's core tier one capital - one of the key measures of a bank's financial health - by £260 million (Dh1.52 billion), equal to 7 basis points of increase.
The person said: "It's the right time to take a sensible investment decision. The warrants have been used to fund the derivative position. There is some upside if the share price rises, and the downside is de-risked. Hedging is the right investment strategy in the current circumstances."
Some analysts believe banking profits are beginning to come under pressure and that market conditions could deteriorate further in the final quarter of this year. There are persistent fears of a double-dip recession in the western economies, and continuing worries about lending and liquidity.
These could particularly affect earnings from the investment banking business, which has been the key profit generator for the banks since the financial crisis of 2008 to last year.
Abu Dhabi was one of the Gulf investors that helped Barclays raise £7bn of new capital in October 2008 to stave off the risk of bailout and ownership by the UK government. Last year, the emirate made a £1.5bn profit by selling convertible notes in the bank. The latest transaction adds a further £750m of profit for the emirate.
PCP Invest 3 is a "special purpose vehicle" (an investment instrument set up for a particular transaction) run by PCP Capital Partners, a financial advisory business run by British investment adviser Amanda Staveley.
