Standard Chartered PLC: Right moves

The bank has indicated the capital raised will buffer capital requirement arising from Basel-III norms

Standard Chartered PLC has announced plans to raise $5.3 billion through a rights issue by issuing one new share for eight shares at Rs 1,280 pence per share, a 30 per cent discount to the company’s estimates of theoretical ex-rights share price (priced at 1,899.5 pence on LSE — October 15, 2010 close).

The Indian Depository Receipt (IDR) holders will not be able to participate due to regulatory issues. However, their portion will be sold and proceeds distributed to them as Temasek, which owns about 19 per cent of Standard Chartered Bank, intends to take up rights.

The issue announcement surprised the markets initially as it came earlier than expected, but the bank indicated the capital raised would help buffer capital needs arising from the Basel-III norms. Post-issue, core Tier-I capital will increase to 11.2 per cent from nine per cent currently, but Basel-III rules are expected to impact Tier-I by 100 basis points.

The capital raised will also fuel its deepening foray, chasing profitable growth in new emerging markets including China, Eastern Europe, Latin America and Africa. Another focus would be to broaden its presence in investment banking, private banking and asset management in these markets.

Analysts believe the bank is on track to post record profits in 2010 with momentum continuing from a good run in the first half into the second half. The bank will look more stable with $31-35 billion of core equity (raised ahead of time) generating expected return on core equity (RoE) of around 16 per cent (reported RoE will fall to 13-14 per cent from 17 per cent), states a Mirae Asset report.

There has been no visible pressure on the stock despite the potential dilution at a significant discount and the inability of holders to participate. It ended flat on Monday after the announcement at Rs 120 levels.