DBS Group Holdings, South-east Asia's biggest bank by assets, said on Monday it plans to raise about S$4 billion in a rights issue.

The funds will beef up the bank's balance sheet at a time when global investors favour financial institutions with higher capital levels, DBS said in a statement.

'DBS is initiating this capital-raising exercise from a position of strength,' chief executive officer Richard Stanley said in a statement.

'Our business continues to perform well despite the challenges of the global economic downturn.

'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.'

DBS said the capital to be raised from the rights issue is not meant for mergers and acquisitions (M&A) or extraordinary provisions.

Neither is it designed for a 'clean-up of our balance sheet,' Mr Stanley said during a conference call with the media.

'On the contrary, we are currently well-provisioned and it is not to fund any M&A activities,' he said.

Mr Stanley said he expects 2009 to be a challenging year with the global economy still hurting from financial turbulence that swept across the world this year.

'The real economy continues to be challenged for reasons that we all know.

It's no secret,' he said.

The global crisis has its roots in tainted mortgage-related assets linked to US financial institutions. Governments in the US and Europe were forced to step in and bail out their troubled banks.

DBS expects its provisions and non-performing loans to be 'up somewhat but we don't expect it to be a major spike', Mr Stanley said.

Analysts from Credit Suisse cited several possible reasons for the rights issue. They said the move could be intended to plug a potential fourth-quarter loss or to fund growth of Singapore dollar-denominated loans.

It that 'the fresh equity would allay a lot of market concerns and remove some of the discount' in relation to Singapore's other banks, UOB and OCBC.

DBS said in November that third-quarter net profit fell 38 per cent year-on-year to S$379 million as market-related income took a hit from the global financial crisis and bigger provisions.

Also last month, the bank said it was cutting 900 staff to trim costs during the credit crisis. DBS became the first major Singaporean firm to announce job cuts of such magnitude.

The bank will offer 760.48 million new ordinary shares at S$5.42 each on the basis of one rights share for every two shares held on Dec 31, said DBS.

The rights issue share price is a 45 per cent discount to the bank's closing stock price of $9.85 on Friday, it said.

Singapore investment firm Temasek Holdings, the largest shareholder in DBS with a 27.6 per cent holding, will subscribe for up to 33.3 per cent of the rights issue.

Temasek Holdings' stake in DBS will remain under 30 per cent even after taking up the rights issue, said Mr Stanley.

DBS is the largest of Singapore's three major banks and has operations in 16 markets including Hong Kong, China and Dubai.

In November Standard Chartered bank, which is listed in Hong Kong and London, said it plans to raise 1.78 billion pounds (S$3.84 billion) in a rights issue to better position itself during the global financial turmoil.

DBS shares ended down 48 cents at S$9.37 Singapore. -- AFP