Published November 25, 2008

Stanchart plans £1.8b rights offer

Move will bulk up finances; Temasek to play underwriter as well as investor

By SIOW LI SEN

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(SINGAPORE) Standard Chartered Bank is tapping shareholders for a £1.8 billion (S$4.1 billion) rights issue - and largest shareholder Temasek Holdings potentially gets two bites of the cherry.

Not only will it take up its 19 per cent entitlement of the deeply discounted rights issue, but Temasek also gets to earn underwriting fees as one of the four underwriters of the issue.

Yesterday Stanchart, which had earlier held out against the need to raise more capital, said it was offering 30 new shares for 91 already held to existing shareholders at 390 pence each, or a 48.7 per cent discount to the last closing price.

It said the rights issue 'addresses the shift in investor expectations toward higher capital levels, reinforces the strength of the balance sheet during this turbulent period and will give Standard Chartered the flexibility to take advantage of the opportunities emerging from the current environment'.

Temasek is underwriting 33.33 per cent of the rights issue made up of its 19 per cent entitlement plus underwriting a further estimated 14 per cent.

The other three underwriters are UBS, Goldman Sachs and JPMorgan which will each underwrite 22.22 per cent.

Stanchart will pay market rate underwriting fees of 2.75 per cent.

The bank also said that given the timing of the rights issue, falling as it does near the end of the financial year, it intends to distribute by way of final dividend for the financial year ending Dec 31, 2008 the same absolute monetary amount it would have done had the rights issue not been implemented.

Stanchart paid an annual dividend of 79.35 US cents a share in 2007.

A Temasek spokeswoman confirmed that Temasek is participating in the rights issue.

In a media call, Stanchart group finance director Richard Meddings said the bank is in a strong financial position and the rights issue is not to fill a hole in its balance sheet.

He said the bank is delivering record profits for the first 10 months of this year and 'we're comfortable with the consensus' for full year pre-tax profit.

In launching the rights issue, Stanchart is listening to shareholders, he said. 'In the current economic environment, investors' expectations about capital levels across the banking sector have changed, with a greater focus on core equity capital and a general preference for higher levels of capital.'

In this volatile and uncertain environment, reinforcing the bank's balance sheet is a 'competitive differentiator' at a time when many rivals are in 'disarray', said Mr Meddings.

The move, however, could push Temasek's stake past the 20 per cent threshold imposed by Hong Kong's regulator to as much as 22 per cent. Specifically, this could mean that Stanchart loses the right to issue notes in Hong Kong.

Asked about this, Mr Meddings said: 'This is a hypothetical issue. . . If they end up through to 20 per cent, it would be subject to necessary regulatory approval.'

He stressed that Temasek could only end up with a bigger stake if the rights were not well subscribed and if the stock falls below the rights price, and before that could happen 'it would require regulatory approval.'

A Bloomberg report quoted the Hong Kong Monetary Authority (HKMA) chief executive as saying Stanchart will lose it right to issue notes if Temasek's stake goes above 20 per cent.

'We don't wish a foreign government to have a large influence over our note-issuing banks,' Joseph Yam told reporters in Beijing yesterday.

Still, the rights offer is unlikely to cause a foreign government to have a stake exceeding 20 per cent in Stanchart, he said in comments broadcast live on television, without elaborating.

'We are aware of and respect HKMA's regulations,' Temasek said in a statement.

Apart from Stanchart, Bank of China and HSBC Holdings are the other two lenders that issue Hong Kong dollars.

Hong Kong notes are issued by commercial lenders because the city does not have its own central bank or share China's currency. The Hong Kong dollar is pegged to the US dollar.