Shareholders in Lloyds Banking Group could reap a windfall worth more than £500m early next year following a deal that will see it repaid loans in full by the owners of The Daily Telegraph.
Sky News has learnt Britain’s biggest high street lender will be in a position to write back more than £500m on the value of a £700m loan extended years ago to the Barclay family.
One banking analyst said the writeback, the precise size of which will be disclosed in Lloyds’ annual results next February, would pave the way for Lloyds to return a significant amount of capital to investors, potentially through a special dividend or share buyback.
Lloyds is expected to receive a total of £1.16bn early next week from the Barclays following an agreement between the family and RedBird IMI, an Abu Dhabi-based vehicle which is majority-funded by members of the Gulf state’s royal family.
RedBird IMI plans to convert a £600m chunk of the loan into shares in the Telegraph newspapers and The Spectator magazine if it gains regulatory approval for the deal.
On Thursday, Lucy Frazer, the culture secretary, confirmed a Sky News report that she was issuing a Public Interest Intervention Notice (PIIN) that will subject the transaction to scrutiny by Ofcom and the Competition and Markets Authority.
Ms Frazer is seeking the regulators’ responses before the end of January, after which the takeover of the broadsheet newspapers could be approved or blocked.
A newsagent carries a pile of Daily Telegraph newspapers
Dozens of Conservative MPs, including the former party leader Sir Iain Duncan Smith, have called for the deal to face further investigation under national security laws.
The debt repayment to Lloyds is, however, unaffected by the PIIN.
The bank has already given notice to the government of the debt repayment, with the funds expected to be transferred early next week.
The outcome will be a stunning one for Lloyds and its chief executive Charlie Nunn, who had rejected a series of partial repayment offers from the family lodged after the Telegraph’s holding company was placed into receivership during the summer.
In addition to the £700m value of the principal loan, the Barclays are paying more than £400m in interest which has accrued over many years.
“The writeback is pure profit for Lloyds and will flow straight to the bank’s bottom line,” the analyst said.
One person close to the situation said Lloyds had written down the majority, but not all, of the loan’s original £700m value.
A writeback of over £500m is therefore expected to contribute a meaningful proportion of the bank’s 2023 annual profit.
Analysts say the company is already generating significant sums of excess capital and that the absence of a substantial acquisition would therefore give Lloyds’ board the freedom to return the Telegraph loan windfall to shareholders.
RedBird IMI, which is fronted by the former CNN president Jeff Zucker and funded in large part by Sheikh Mansour bin Zayed Al Nahyan, the owner of Manchester City, has pledged to preserve the Telegraph’s editorial independence.
The repayment of the Lloyds loan will trigger the dissolution of a court hearing in the British Virgin Islands to liquidate a Barclay company tied to the newspaper’s ownership, and temporarily put the family back in control of their shares in the broadsheet title.
However, the Barclays will be subject to restrictions imposed by the government which are expected to be outlined shortly.
A trio of independent directors, led by the Openreach chairman Mike McTighe, will remain in place while a public interest inquiry is carried out.
RedBird IMI’s move to fund the loan redemption has circumvented an auction of the Telegraph titles which has drawn interest from a range of bidders.#
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The battle for control of The Daily Telegraph has rapidly turned into a complex commercial and political row which has raised tensions between the DCMS and the Foreign Office over Britain’s receptiveness to foreign investment.
Prospective bidders led by the hedge fund billionaire and GB News shareholder Sir Paul Marshall had been agitating for the launch of a PIIN.
Sky News revealed recently that Ed Richards, the former boss of media regulator Ofcom, is acting as a lobbyist for RedBird IMI through Flint Global, which was co-founded by Sir Simon Fraser, former Foreign Office permanent secretary.
The Telegraph auction, which has also drawn interest from the Daily Mail proprietor Lord Rothermere and National World, a London-listed local newspaper publisher, has now been paused until next month.
The original bid deadline had been shifted from 28 November to 10 December to take account of the possibility that Lloyds might be repaid in full by the Barclay family by December 1.
That bid deadline is now expected to be cancelled.
Until June, the newspapers were chaired by Aidan Barclay – the nephew of Sir Frederick Barclay, the octogenarian who along with his late twin Sir David engineered the takeover of the Telegraph in 2004.
Lloyds had been locked in talks with the Barclays for years about refinancing loans made to them by HBOS prior to that bank’s rescue during the 2008 banking crisis.
A Lloyds spokesman indicated that any capital distributions would be evaluated in the usual way by its board ahead of the bank’s annual results, but declined to comment further.