Temasek’s official reason on Barclays sale holds no water

The Straits Times (also known as the State’s Times) reported today that fears of nationalisation in the UK may have prompted Temasek to offload their Barclays stake in a fire sale which may have cost Singapore S$2.4 bn:

Nationalisation would have made the shares almost worthless and was ‘one of the fears that all investors had at the time’, said Mr Wong Kok Hoi, chairman and chief investment officer of APS Asset Management.

‘There was extreme concern about the viability of the banks. Most Western banks were technically bankrupt.’

Other analysts noted that Barclays was facing potential cash calls at the time, which would have forced existing investors to pay up to keep the bank solvent.

This makes sense… except it doesn’t.  Wayang Party posted the following today:

Even if the Barclays were to be nationalized, the British government would have to pay a price above the market value to acquire the shares from Abu Dhabi, thereby ensuring that the latter will not suffer a loss.

Did Temasek insist on this clause being added to the contract when it purchase a 2% stake in Barclays then?

Why did Temasek cash out so soon when it is obvious that the Barclays is unlikely to be nationalized as long that Abu Dhabi continues to hold stakes in it?

Wayang Party was quoting this particular news article initially reported earlier on Jan 22nd, 2009:

A clause inserted during the Abu Dhabi Royal Family’s investment in Barclays last October has made it practically impossible for the Government to take a meaningful stake in the bank, The Times has learnt.

…

But the small print in the deal, in which Barclays raised £7.3 billion from Abu Dhabi and Qatar, means that if the bank raises fresh capital before the end of June, the Middle Eastern investors would receive a greater number of shares for their original investment without paying more. If Barclays were to raise fresh capital at last night’s closing price, for example, it would automatically hand almost 50 per cent of the bank to the Middle Eastern investors. The only way to get around the anti-dilution clause, should Barclays need more money before the end of June, would be if new capital was raised at more than the 153p-a-share at which paper issued to Abu Dhabi and Qatar is due to convert into Barclays stock.

This would mean that if the Government wanted to take a meaningful stake in the bank, it would have to do so by paying more than 153p for Barclays shares — which were trading at just 66.1p yesterday. The Treasury would face accusations of wasting taxpayers’ money were it to do this.

The clause was inserted at the request of Amanda Staveley, chief executive of PCP Capital, the private equity firm, who advised the Middle Eastern investors on taking the stake. It is understood that she insisted on the clause because she was concerned that instability in the markets in coming months could potentially force Barclays to raise more capital.

Some questions are in order in light of this revelation:  Did Temasek attempt to negotiate a similar view with any of its holdings? Was it aware that Abu Dhabi had such a deal with Barclays?  More importantly, when exactly did Temasek sell its Barclays stake?  Before it learnt that Abu Dhabi made such a deal, if at all? What did Temasek Holdings kow and when did it know it?

In the wake of the American financial crisis a question that kept recurring was whether giant financial institutions took risks because they knew they would be bailed out by the Treasury should they suffer from institutional failure.  The same question now has to be asked of Temasek.

Did Temasek assume larger risks with its investments simply because it knew the Singapore government could easily stymie CPF withdrawals by means such as raising Minimum Sum?