Standard Chartered rights issue sails through

Priced at a 49% discount, the rights issue entices 97% of shareholders to pick up their entitlements and helps to bolster the bank's capital by $2.7 billion.
Standard Chartered Bank said yesterday that shares in its ú1.8 billion ($2.7 billion) rights issue, which was launched at the end of November, had been taken up by 97% of shareholders.

On November 24, Standard Chartered announced a rights issue of shares priced at ú3.90 per share. Existing shareholders were offered 30 new shares for every 91 shares they held. The decision to sell the shares came days after the bank announced a deal to buy 100% of brokerage firm Cazenove Asia and led to some speculation that the bank, which is listed in both London and Hong Kong, could be shoring up capital to pursue further acquisitions.

The rights shares were priced at a 49% discount to the closing share price on the London Stock Exchange on Friday, November 21, and at a 42% discount to the theoretical ex-rights price.

Analysts reckoned that the hefty discount was intended to garner subscription from its existing investors, rather than adopt the route used by others such as Barclays and Credit Suisse of inducting new investors and diluting existing shareholders. And judging by the response to the rights issue, the strategy was successful.

Temasek Holdings is the largest shareholder in Standard Chartered with a 19% stake. Before the issue was launched, the Singapore-headquartered investment firm said that it intended to take its rights entitlement and that it would also underwrite part of the remaining issue.

This created some uncertainty in Hong Kong where Standard Chartered is a currency note-issuing bank, alongside Bank of China and HSBC. Standard Chartered has enjoyed this privilege for around 100 years. Hong Kong Monetary Authority CEO Joseph Yam told media in Beijing in November that Standard Chartered will cease to be a note-issuing bank if a foreign government holds more than 20% in the bank.

Standard Chartered said yesterday that Temasek has taken the shares it was entitled to.

JPMorgan Cazenove acted as financial adviser and joint bookrunner to Standard Chartered on the rights issue. Goldman Sachs and UBS were joint bookrunners and the two firms, along with J.P. Morgan, also underwrote the issue. Legal advice was provided by Linklaters and Slaughter and May.

The joint bookrunners will now run a book for the remaining 3.05% of the issue that was not subscribed for.

In a letter to shareholders to announce the issue Standard CharteredÆs chairman, Mervyn Davies, stressed that the bank is ôstrongly liquid, is well capitalised, within its target range for total tier-1 [capital], with a conservative balance sheet and meets all regulatory capital adequacy requirementsö. He added that the capital-raising was intended to enable Standard Chartered ôto continue to build on its existing, very successful strategyö.

Over the past five years this strategy has helped the bank double its income, through organic growth supplemented by acquisitions. Davies highlighted that the primary focus will continue to be on organic growth opportunities but did not rule out the bank pursuing takeover opportunities that meet its return criteria and fit its strategic priorities.

Over the 150 years of its existence, Standard Chartered has created a niche operating in Asia, the Middle East, and Africa, from where it derives 90% of its operating income. Some analysts have expressed concerns that this makes it vulnerable to the impending slowdown in Asia and the bank's steps to shore up its capital adequacy should reassure investors and other stakeholders that the bank is creating a buffer to address this issue and to ensure it remains open for business.

Standard Chartered fell 19% in Hong Kong yesterday to a close of HK$92.10 ($11.88).
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