STANDARD CHARTERED shares slipped less than expected yesterday after the emerging markets bank confirmed plans to launch a £1.8 billion (€2.1 billion) rights issue to boost its capital reserves.
The offer is the first rights issue by a UK-based financial institution since the recent turmoil in the capital markets raised questions about the ability of banks to raise fresh capital from existing shareholders.
In a rising UK stock market, StanChart shares fell 42.5p, almost 6 per cent, to 717p.
However, bankers said the drop was less than they would have expected given the fact that StanChart was issuing a large number of new shares. The theoretical price for the shares after the issue was estimated at 668p.
StanChart chief executive Peter Sands defended the move despite his repeated insistence that the bank was well-capitalised. "We came to the conclusion it was on balance the right thing to do for our shareholders," he said.
The move represents a vote of confidence in the rights issue process, called into question after large bank issues failed earlier this year, and after rival lender Barclays largely shunned existing shareholders when raising £7 billion.
However, the associated risks are reflected in the fact that StanChart is offering its new shares at 390p - a 48.7 per cent discount to its closing price last Friday.
It is also paying fees of £54 million, or about 275 basis points, to banks and investors as underwriters.
Temasek, StanChart's largest shareholder with 19 per cent, is helping to underwrite the rights issue and yesterday indicated it would take up its share.
If other shareholders do not follow it, Temasek's stake could rise above the 20 per cent foreign shareholding threshold imposed by Hong Kong regulators, threatening its right to print Hong Kong bank notes.
The bank's core tier 1-one ratio at June 30th was 6.1 per cent and ould be at a pro forma 7.4 per cent after the rights issue. Total tier 1 at June 30 was 8.5 per cent, or 9.8 per cent pro forma.
StanChart said in a trading statement it had achieved record profits in the 10 months to October. - ( Financial Timesservice)
