Standard Chartered Bank announces $3 billion rights issue

Standard Chartered Bank has gone ahead with raising capital to weather the economic downturn and take advantage of the opportunities available in current situation. StanChart is listed on London and Hong Kong stock exchanges. StanChart announced that it will raise £1.78bn through rights issue at 390 pence per share, huge discount to its current market price of 760 pence per share. Existing shareholders will have the option of subscribing 30 new shares for every 91 shares held. This step will raise its Tire-1 capital ratio to 7.4% from 6.1%. This is in line with the industry wide shift of Tire-1 capital ratio towards 8%.

Temasek Holdings Pte is currently the biggest shareholder in StanChart with owning about 19% of the company. If Temasek goes ahead with the rights it can increase its stake to 22%. But this will make StanChart lose the right of printing Hong Kong currency. According to Hong Kong Monetary Authority regulations no bank with more than 20% owned by foreign government can issue currency notes in Hong Kong.

Remarkably, StanChart has so far been relatively insulated from the subprime crisis because of its focus on emerging markets like India, Taiwan etc. But now the economic situation spreading, even the emerging economies are not insulated and it is good option to raise capital while you still can.