Jan. 22 (Bloomberg) -- Barclays Plc may have to give up more control to Middle East investors if the U.K. bank is forced to seek additional capital.

Abu Dhabi’s royal family and two Qatari investors purchased a 32 percent stake in October after London-based Barclays decided against accepting funds from the British government. Barclays fell 10 percent today in London to the lowest in two decades after the bank said its agreements stipulate it must offer additional shares at a discount to the Middle East group before accepting any money from the U.K.

The provisions, intended to prevent the dilution of the 32 percent stake, wouldn’t stop the company from taking up assistance from the U.K. government, Barclays spokesman Alistair Smith said by telephone today. Other investors who bought Barclays convertible notes have similar protection, he said.

The anti-dilution clauses “have no bearing on Barclays’s ability to participate in the package of measures announced by the tripartite authorities,” Smith said.

Barclays raised 5.3 billion pounds ($7.4 billion) on Oct. 31, selling securities including convertible notes to Sheikh Mansour Bin Zayed Al Nahyan of Abu Dhabi, Challenger Universal Ltd. and Qatar Holding. Barclays has plummeted since then in London trading on speculation it will need more capital to cover credit writedowns and may be taken over by the British government.

‘Going to be Tricky’

“This means that it’s going to be tricky for them to raise capital in the next five months,” said Bruno Paulson, an analyst at Sanford C. Bernstein in London who has an “outperform” rating on the stock. “The clause didn’t really matter when the stock price was healthy. It only kicked in severely this week.”

The stock is down 61 percent this month and 67 percent since Barclays announced plans to sell the convertible notes. They pay interest of 9.75 percent until they are converted to stock at 153.3 pence apiece on June 30.

Qatar Holding and Sheikh Mansour also bought 3 billion pounds of securities known as reserve capital instruments. These require Barclays to pay annual interest of 14 percent and give the investors warrants to buy more than 1.5 billion Barclays shares at about 198 pence apiece. Barclays fell to 59.2 pence in London today, valuing it at 5 billion pounds, less than it raised from the Gulf funds last year.

The contracts with the investors would prevent the U.K. government from taking a majority stake in the bank, the Times and Telegraph in London reported earlier today.

‘Cheap as Chips’

“The key question is: what does their balance sheet look like and do they need to raise capital?” said Alan Beaney, who manages $2 billion including Barclays stock at Principal Investment Management in Sevenoaks, England. “If Barclays doesn’t need to raise capital then the stock is as cheap as chips.”

Barclays’s capital strength is “well ahead” of the level required by regulators, Barclays spokesman Smith said. Writedowns of 10 billion pounds would leave the bank needing further capital, wrote London-based analyst Simon Willis at NCB Stockbrokers Ltd. in a note to investors today.

Separately, Frits Seegers, Barclays’s head of retail and commercial banking, used about 896,000 of his Barclays shares as security with a third-party bank, according to a regulatory statement today. The shares were used to secure a loan from Citigroup Inc. to buy shares in Barclays, the Guardian reported.

To contact the reporter on this story: Jon Menon in London at jmenon1@bloomberg.net

Last Updated: January 22, 2009 13:58 EST