DBS Plans S$4 Billion Rights Offering at 45% Discount

DBS Plans S$4 Billion Rights Offering at 45% Discount


Dec. 22 (Bloomberg) -- DBS Group Holdings Ltd., Southeast Asia’s biggest bank, is seeking S$4 billion ($2.76 billion) in a rights offering to weather a credit crisis that’s forced it to cut jobs for the first time since 2001.

DBS will issue one new share for every two held by existing investors at S$5.42 apiece, according to a statement today. That’s a 45 percent discount to Dec. 19’s closing price of S$9.85. DBS tumbled as much as 11 percent in Singapore trading to a 5 1/2-year low after a share suspension was lifted.

Chief Executive Officer Richard Stanley is turning to investors for cash after a slowdown in Singapore’s economy and rising provisions for losses on credit investments caused DBS’s steepest earnings decline in two years. DBS today said fourth- quarter profit will fall from the previous three months and predicted credit costs will increase in 2009.

“The world is demanding banks have more capital and the outlook is very tough for Singapore banks right now,” Brian Hunsaker, a Hong Kong-based analyst at Fox-Pitt Kelton Asia Ltd., said before DBS’s announcement. DBS’s so-called core Tier 1 capital, a gauge of financial strength, is lower than at rival Singapore banks, he said.

Temasek Holdings Pte, one of Singapore’s two state-owned investment firms and owner of just under 28 percent of DBS, will underwrite up to one-third of the rights offer. The arrangement includes a commitment from the firm to take up its pro-rata share of the sale, a Temasek spokeswoman said.

Bonus Payouts

DBS said staff costs will increase in this quarter as it pays out bonuses. Job cuts announced in November will result in cost savings in the first quarter, the bank said.

The bank joins financial firms that have raised about $920 billion worldwide to survive the global recession brought about by frozen credit markets. Standard & Poor’s said Dec. 19 it expects banks to face more uncertainty in funding markets and a higher level of stress than in a “typical business-cycle trough.”

Banks around the world are raising cash to combat the credit crunch. Standard Chartered Plc, the U.K. bank that makes most of its profit in Asia, said Dec. 18 it raised 1.8 billion pounds ($2.8 billion) in a rights offer priced at a 49 percent discount.

In Asia, lenders including Mizuho Financial Group Inc. and National Australia Bank Ltd. have raised a combined $52 billion as the U.S. recession dragged down growth in the region, according to data compiled by Bloomberg.

Capital Ratio

The sale will raise DBS’s core Tier 1 capital ratio to 9.9 percent from 7.8 percent, the bank said. Tier 1 capital, which includes equity, plus qualifying preferred and hybrid securities, would rise to 11.8 percent from 9.7 percent, DBS said.

DBS priced the offering at less than half the firm’s book value of S$13.26 as of Sept. 30. That makes it “attractive to investors,” said Pauline Lee, an analyst at Kim Eng Securities in Singapore.

The bank said Nov. 7 it will cut 900 jobs, or 6 percent of its workforce, in the bank’s first mass layoffs since 2001. DBS’s net income fell 38 percent to S$379 million for the quarter ended Sept. 30, the most among Singapore’s three banks.

Citigroup Inc., Goldman Sachs Group Inc, JPMorgan Chase & Co., Morgan Stanley and UBS AG are arranging the sale, DBS said.

BLOOMBERG