South-East Asia's largest bank, the Singapore-based DBS Group Holdings Ltd, today announced a rights issue to raise net proceeds of approximately S$4 billion ($2.7 billion) on the basis of one new ordinary share for every two existing shares held  at close of working hours on 31 December 2008.

Last month DBS reported a 38 per cent fall in quarterly net profit to S$379 million and said it would cut 900 jobs or 6 per cent of its staff.

The value of the stock was down by around 4 per cent on the Singapore Stock Exchange after the announcement.

The capital-raising exercise will further strengthen DBS' balance sheet at a time when investor preference globally has shifted in favour of banks with higher capital levels, especially core capital levels. Following the rights Issue, DBS' stronger capital position will provide the bank with a competitive advantage to strengthen existing customer relationships, seek out new customers, and selectively grow its loan book to increase market share and profitability.

Said DBS CEO Richard Stanley: "DBS is initiating this capital-raising exercise from a position of strength. Our business continues to perform well despite the challenges of the global economic downturn. We have a robust balance sheet characterised by strong liquidity, capital adequacy ratios and asset quality. The rights issue will enable DBS to capture opportunities to entrench our market position in key Asian markets and confidently weather the economic uncertainties ahead."

Strong financials
The asset quality of DBS is healthy with a non-performing loans ratio of 1.3 per cent and non-performing assets allowance coverage ratio of 123 per cent as on 30 September 2008. DBS also has a strong liquidity position underpinned by a loan to deposit ratio of 76.6 per cent  in the same period. 

 As on 30 September 2008, the consolidated core Tier 1 and Tier 1 ratios of the Group were 7.8 per cent and 9.7 per cent, respectively, while the total capital ratio was 13.4 per cent. After adjusting for the estimated net proceeds of the Rights Issue, the pro forma consolidated core Tier 1 and Tier 1 ratios of the Group as at 30 September 2008 would have increased to 9.9 per cent and 11.8 per cent, respectively.

The rights issue is underwritten in full by Citigroup Global Markets Singapore Pte Ltd, Goldman Sachs (Singapore) Pte, JP Morgan (S E A) Limited, Morgan Stanley Asia (Singapore) Pte and UBS AG, acting through its business division, UBS Investment Bank.

DBS has also appointed DBS Bank Ltd and the Underwriters as joint lead managers of the rights issue. DBS' largest shareholder, Temasek Holdings (Private) Limited has agreed to subscribe for up to one-third of the rights issue through a sub-underwriting arrangement. This includes Temasek taking up its rights entitlement of 27.6 per cent. The directors of DBS intend to take up their entitlements under the rights issue in full.

The issue price of S$5.42 per share represents approximately 45 per cent discount to the last traded share price of S$9.85 on 19 December 2008 and approximately 35 per cent discount to the theoretical ex-rights share price of S$8.37 per share.