Standard Chartered in £1.8bn cash call

Singapore's Temasek helps underwrite rights issue
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Standard Chartered, the London-based bank that operates primarily in emerging markets, became the latest British lender to appeal to shareholders for more cash as the credit crunch, which began as a Western phenomenon, spreads worldwide and affects its markets.

The bank, which does most of its business in Africa, Asia and the Middle East, said yesterday it plans to raise £1.8bn from a rights issue. The move will help it to boost its capital base. The cash will also cushion it from the impact of possible further economic gloom in Asia and the Middle East and allow it to pursue potential acquisitions.

The lender said the economic picture had deteriorated this month and, although the bank was performing well, the outlook was unclear.

Bank investors have grown increasingly nervous in recent months about the possible impact of the recession on banks, and they, as well as governments and regulators, have put pressure on them to shore up their cash reserves to boost their capital ratios, better covering their liabilities. Analysts at KBW said: "We have been cautious over capital at Standard Chartered for some time, believing the current position did not provide sufficient protection against the deteriorating environment and exogenous shocks. So we view the capital increase as a positive step."

The cash injection by the bank, which has dodged the huge losses from the credit crisis suffered by some competitors, came as some analysts called for it to beef up its capital cushion to withstand potential losses in Asia and the Middle East.

But concerns over the dilutive impact of the rights issue were heightened by news of further structured credit losses, and by confirmation that the bank's Korean operations have been hit by a fall in the value of the won, analysts said.

"The speed of devaluation of the Korean won as well as the larger structured credit losses are new negatives," said Collins Stewart analyst Alex Potter.

The fundraising would have boosted Standard Chartered's core tier 1 capital ratio at the end of June to 7.4 per cent, compared with an actual figure of 6.1 per cent, the bank said. Its tier-1 ratio would have been 9.8 per cent instead of 8.5 per cent.

Standard Chartered said its biggest shareholder, the Singapore state investment vehicle Temasek, plans to take up its rights and is involved in underwriting the issue. Other banks underwriting are Goldman Sachs, JP Morgan and UBS.

One issue could arise if the offering bombs, and Temasek – which holds 19 per cent of Standard Chartered – ends up with more than 20 per cent as an underwriter. Hong Kong, where Standard Chartered is a note issuer and has a listing, will not let a bank with a foreign shareholder holding more than 20 per cent be a note-issuing bank.

However, this is unlikely due to the discount on the rights offering. The company will issue 30 new shares for every 91 existing ones. The 390p-per-share issue price represents a 48.7 per cent discount to Friday's closing price. The shares fell by 4.5 per cent to 725p yesterday.