- Barclays to Sell IShares to CVC for $4.4 Billion

Barclays to Sell IShares to CVC for $4.4 Billion

Written by Wilfred Ling

Friday, 10 April 2009

According to HERE, Barclay has sold its iShares unit to CVC for $4.4 billion. This will help to boost its capital. But wait, a closer look at the report revealed that Barclay itself is financing $3.1 billion of the deal. What does this means?

From the cash flow point of view, its cash flow for investing (CFI) will receive a cash inflow of $1.3 billion. Meanwhile, it lends the balance $3.1 billion to CVC. However, no further cash flow for CFI is made. Instead, the lending is a non-cash transfer of the ownership of iShares to CVC. How does the balance sheet look like?

Assets:
Increased by cash inflow of $1.3 billion
Increased by loan made to CVC of $3.1 billion
Decreased by $4.4 billion due to the sale of iShares to CVC

Liabilities: Current and non-current liabilities including some toxic assets

It can be seen from the above that the sale only resulted in a small inflow of cash. As the saying goes, cash is king especially in this market environment. Will CVC default on its loan? Not sure, but what is certain is nothing is certain in this environment.

Another thing is that in this market environment, nothing can be sold unless it is really valuable. iShares is Barclay’s crown jewel. iShares is currently the largest ETF provider in the world. iShares is a cash cow. It does not need to hire fat-bonus-paying fund managers to manage the ETFs because it only tracks the index. So this sale of its crowd jewels is good for the buyer but bad for the seller. Why is it that it must sell iShares? According to the report, Barclay is shunning the U.K.’s asset-insurance program to avoid state influence. I am unsure whether is it wise to sell its cash cow just to avoid being nationalized.

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