HONG KONG/SINGAPORE - EMERGING markets bank Standard Chartered plans to raise 1.8 billion pounds (S$4.11 billion) from a rights issue to boost its capital base and give it flexibility to pursue acquisitions, it said on Monday.

The London-based lender said the economic picture had deteriorated this month and, although the bank was performing well, the outlook was unclear.

The bank's chief executive, Peter Sands, said investors were keen for banks to hold more capital during turbulent market conditions and there was merit in retaining an excess of cash.

The extra funding could also be used for deals, he said.

'Having more capital will give us greater flexibility to take advantage of growth opportunities emerging from the turmoil, both organic and inorganic,' he said.

'Many of our competitors are in disarray, lacking capital or liquidity or distracted by problems,' Mr Sands told reporters on a conference call.

But concerns over the dilutive impact of the rights issue were sharpened by news of further structured credit losses, and by confirmation that the bank's Korean operations have been hit by a fall in the value of the won, analysts said.

By 1008 GMT (6.08pm Singapore time) Standard Chartered's London-listed shares were down 4.2 per cent at 727.5 pence, compared with an issue price of 390 pence for the capital increase, while the FTSE 100 share index was 4.36 per cent higher.

'The surprise factor in this announcement is unlikely to be taken well,' analysts at Oriel Securities wrote in a note.

'Investors are likely to ask is the capital being raised because the market expected it, or because operational circumstances for Standard Chartered have changed?' The fund raising would have boosted Standard Chartered's core tier 1 capital ratio at the end of June to 7.4 per cent, compared with an actual figure of 6.1 per cent, the bank said. Its tier one ratio would have been 9.8 per cent instead of 8.5 per cent.

The cash injection by the bank, which has dodged the massive losses from the credit crisis suffered by some of its competitors, came as some analysts called for it to beef up its capital cushion to withstand potential losses in Asia and the Middle East.

Capital crucial
Other big banks have raised capital this year and, as the industry braces for the impact of recession in many countries, the US government agreed on Monday to bail out Citigroup while UK rival Barclays sought investor approval for a controversial fund raising.

Standard Chartered said its biggest shareholder, Singapore investment company Temasek, planned to take up its rights and was also participating in the underwriting of the issue.

'If you compare Standard Chartered to a few of its peers, it doesn't really have toxic assets,' said Kwok Chern-Yeh, a fund manager at Aberdeen Asset Management Asia, which owns Standard Chartered shares and manages about $37 billion in assets.

'But it has made quite a few acquisitions in the last year and a half so it is shoring up its capital.' In Hong Kong, the bank's shares fell 6.4 percent to HK$88.00 (S$17.32) each and were suspended shortly after the rights announcement.

Mr Kwok said Standard Chartered's exposure to Pakistan, South Korea, Taiwan and India made it vulnerable to potential losses from bad debts.

'The concern is that they may have to take some provisions amidst this downturn in the economic cycle, which will hit their bottom line,' he said.

The bank said in a statement that it had continued to perform strongly in the second half, and that it remained well capitalised and highly liquid and comfortably met capital requirements across all its geographies.

It said it had good income momentum, albeit slower than in the first half. -- THOMSON REUTERS