Hong Kong/Singapore: Emerging markets bank Standard Chartered said it would raise $5.3 billion through a rights issue to strengthen its finances ahead of the introduction of new global capital rules.

StanChart also said it had made “very good progress" in the third quarter, with income rising at a faster rate than it had in the first half. Trade volumes were almost back to pre-crisis levels, it added.

Regulators, seeking to prevent the repeat of the global credit crisis, agreed last month to force banks to increase the amount of top-quality capital which they must hold in reserve.

Deutsche Bank kicked off a post-Basel III round of capital hikes earlier this month, raising €10.2 billion ($14.2 billion), in part to meet the new rules.

StanChart said it would offer shareholders the right to buy one new share for every eight shares held at a price of 1,280p, a steep 33% discount to its last price in London.

StanChart reported a core tier one capital ratio of 9% on 30 June, comfortably above the new requirement of 7%. StanChart said it would rise to approximately 11%.

However, under the new Basel rules the definition of core tier one will be tightened so that common equity and retained earnings must make up the bulk of a bank’s capital base. This means many banks’ core tier one capital ratios will be substantially lower under the new rules than they are at present.

“Basel regulations will be difficult for some Western banks and they want to jump ahead of the line in raising capital before some of the European banks do that," CLSA analyst Daniel Tabbush said. “It could be the case that Basel regulations penalise more so banks like Standard Chartered and HSBC within Asia, as they are more cross-border."

Capital rules

StanChart said Singapore state investor Temasek, StanChart’s biggest shareholder with about 18%, will support the rights issue.

Some banks believe that to maintain a reputation for financial strength, they need to pre-empt the full impact of the new Basel III rules, which will be introduced gradually by 2019 and will redefine how the ratios are calculated.

The new tier one requirements also mean banks have to set aside more capital to offset their underwriting activities, which StanChart has been stepping up aggressively this year.

StanChart has been particularly active in Asia, where it has been involved on underwriting big loan deals for Bharti Airtel, Vedanta Resources and BHP Billiton, according to Reuters Basis Point.

In August, StanChart posted a record half year profit of $3.12 billion as key markets in Asia, where it makes about four-fifths of its profits, performed well and bad debts more than halved.

StanChart’s Hong Kong-listed shares were suspended from trade, pending announcement of the issue, which was first reported by the FT.

The Hong Kong portion of the offer will be priced at HK$156.82 a share.

Shares in StanChart rose 2.1% in a slightly weaker UK market on Tuesday, with traders citing talk that JPMorgan is interested in making a takeover approach.

StanChart’s capital raising could also be to send out a message that it was not up for sale, CLSA’s Tabbush said.

StanChart is up some 21% this year, comfortably outperforming the DJ Stoxx 600 European banking sub-index, which is down 4%.

StanChart chief executive Peter Sands told Reuters last month the new capital and liquidity rules for banks are complicating the economic recovery.

He estimated trade finance costs could increase by 20 to 40% as a result of the Basel III rules.

JPMorgan Cazenove, Goldman Sachs and UBS are underwriting the issue.