Who International Petroleum Investment Company (IPIC)
What An Abu Dhabi government-owned fund, or Sovereign Wealth Fund (SWF).
When Investment was made in October 2008 and sold in June 2009
Why Abu Dhabi fund leads the way in showing how to use government money to bolster state coffers in a global recession.
Last October, with the global economy in a freefall, the British bank Barclays, like many of its peers, was searching for sources of capital to protect itself against further declines in the values of its assets. Rather than accepting a handout from the UK taxpayer, the bank decided to raise funds privately through a selection of Sovereign Wealth Funds (SWFs) from such places as Abu Dhabi and Qatar. Now less than a year on, both the UAE and Qatar have cashed in with some hard-earned profit taking.
The Abu Dhabi government-owned International Petroleum Investment Company (IPIC) was the most sizeable investor in Barclays last October. The Emirati fund was said to have bought into roughly 16 per cent of the bank, investing around 4.75 billion GBP including 1.5 billion GBP on warrants and the rest on mandatorily convertible notes (MCNs).
This year, Barclays shares have soared from their previous lows, with the declaration by the British financial regulator confirming Barclays’ adequate capital position driving the stock to a 5-fold increase within 3 months. This meant that just eight months after it first invested, IPIC’s investment in Barclays had almost doubled in value. IPIC was first to decide to sell and Credit Suisse Middle East were contracted to handle this monster undertaking representing 11 per cent of Barclays bank. Credit Suisse underwrote the entire sale at some risk but that decision was substantiated when they managed to sell the entire amount in just one day, on June 2nd 2009. The net profit to IPIC? A handsome 2.5 billion USD. IPIC still remains a shareholder through its ownership of warrants over 5-6 per cent of the bank. IPIC was justified in retaining a shareholding as it has continued to benefit from the increase in Barclays’ share price since the sale a few months ago.
Stressing that the sale was a strategic one, having nothing to do with a lack of confidence in Barclays, H.E. Khadem Al Qubaisi, managing director of IPIC said, “The decision to dispose of some of its interests in Barclays reflects the focus of IPIC’s long-term investment strategy on hydrocarbon-related opportunities.”
The Qataris followed suit in October and monetised a portion of their investment in Barclays, thereby also crystalising a significant gain on its investment and continuing to hold an investment in Barclays to benefit from any further share price increases.
All in all the deals worked out well for everyone. Barclays was saved from the brink, IPIC and Qatar made handsome profits and Credit Suisse Middle East earned sizeable commissions. On whether any future deals were in the pipeline Barclays chief executive, John Varley stated that, “In the period since IPIC and the government of Abu Dhabi took a position in Barclays in 2008 through their purchase of MCNs and RCIs we have been able to broaden our strategic and commercial relationship, and we look forward to developing this further going forward.” High-risk investments with high rewards, thus far.
