3rd UPDATE: Standard Chartered Plans GBP1.78 Billion Rights Issue
Dow Jones
November 24, 2008: 07:30 AM EST
(Adds comments from group chief executive on capital adequacy, HKMA on note- issuing banks in Hong Kong, and analysts' comments on the plan.)
HONG KONG -(Dow Jones)- Standard Chartered PLC (STAN.LN) said Monday it plans to raise GBP1.78 billion (US$2.66 billion) in a rights issue to strengthen its balance sheet, as the financial crisis continues to take its toll on the world's largest banks.
The U.K. lender said the proceeds from the rights issue won't only boost its capital but also give it flexibility to take advantage of emerging opportunities.
"This rights issue is different from many others that you have seen from other banks. It's not to fill a hole," Group Chief Executive Peter Sands told reporters in a conference call. "2009 is full of challenges for any bank, anywhere in the world. That is why we see merit in having a capital buffer."
The rights issue could also give Singapore's state investment company Temasek Holdings Pte. Ltd., which is underwriting the deal, a rare opportunity to boost its stake in the emerging market-focused lender beyond its current 19% holding.
The U.K. lender said it will issue 470 million new shares, or 30 new shares for every 91 existing shares, at 390 pence each, representing a 48.7% discount to the stock's closing price Friday.
In Hong Kong, the issue price will be HK$45.11 a share. Standard Chartered was down 6.4% in Hong Kong at HK$88.00 before trading was suspended two minutes into Monday's afternoon session.
Standard Chartered said Temasek will take part in the rights issue, both as a shareholder and an underwriter.
On top of the 19% it is entitled to buy as a shareholder, it is also underwriting another 14% of the new shares, allowing it not only to avoid a dilution of its current holding, but to raise it further.
"In theory, it can raise its stake to 22%. But it's only hypothetically. It is still subject to regulatory approval," Sands said in the conference call.
A Temasek official, who declined to be named, confirmed the company's participation, but wouldn't elaborate further.
People familiar with the situation said Temasek is interested in boosting its stake to beyond 20%.
"They would like to boost the stake above 20%. This is the one bank in Asia that they really believe in," said one person.
Temasek last increased its stake in Standard Chartered on Jan. 23, bringing its ownership closer to the 20% foreign ownership limit that the Hong Kong Monetary Authority imposes on bank-note issuers in the city.
A further increase in Temasek's holding may mean Standard Chartered would lose its role as one of Hong Kong's three bank-note issuers.
"Our position is very clear," HKMA Chief Executive Joseph Yam told reporters in Beijing Monday, when asked about the ownership cap. "If the rights issue results in a foreign government owning more than 20% of the lender, then it can't continue to issue notes."
The HKMA restriction was announced in July last year to ensure that none of Hong Kong's bank-note issuers has a "close association with any foreign government or foreign government-controlled entity", which controls a stake of 20% or more.
Rights Issue To Boost Capital Adequacy
The other underwriters of Standard Chartered's rights issue are J.P. Morgan Chase & Co. (JPM), UBS AG (UBS), and Goldman Sachs Group Inc. (GS), Standard Chartered said.
The new shares, which are expected to start trading Dec. 23, would increase the lender's total Tier 1 capital adequacy ratio by 1.3 percentage point to 9.8% on a pro-forma basis, the bank said.
Standard Chartered didn't say what its capital adequacy ratio will be after the rights issue. Its total Tier 1 ratio was 8.5% at the end of June.
Investment bank Deutsche Bank AG said the issue is positive in bringing the lender's capital adequacy "more in line" with peers, but Nomura Holdings Inc. said the prospective ratio "doesn't look particularly high to us, given the level other banks are now achieving."
Swiss investment bank Credit Suisse Group reported a Tier 1 ratio of 10.4% by the end of September, while UBS had a ratio of 10.8%.
The new shares will effectively dilute the final dividend to be paid out, as Standard Chartered said it will keep the aggregate amount as it would have done had the rights issue not been implemented.
It said the level of dividends in the future will depend on its expected future earnings, capital requirements and prevailing financial and business conditions.
-By Amy Or and Costas Paris, Dow Jones Newswires; 852-2802-7002; amy.or@ dowjones.com
(Nisha Gopalan and Jeffrey Ng in Hong Kong contributed to this article.)
