UPDATE 4-Qatar cashes in to make $2.7 bn from Barclays deal

* Qatar Holding sells last of warrants on Barclays shares

* Deutsche Bank, Goldman Sachs sell up 303 mln shares at

244p each

* Qatar makes big profit from controversial 2008 fundraising

* Relationship between Qatar and Barclays under criminal

probe

* Barclays shares drop 5 pct

NEW YORK/LONDON, Nov 26 (Reuters) - 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

($2.7 billion) 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.

PROFITABLE BET

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.

Most Popular in Business