Singapore's DBS raises $1.1 bln for expansion

By Saeed Azhar

SINGAPORE (Reuters) - DBS, Southeast Asia's biggest bank by assets, raised a higher-than-expected S$1.5 billion ($1.1 billion) from preference share sale to bolster its books as it seeks to expand in China and elsewhere in Asia.

DBS Group Holdings' (DBSM.SI) fundraising comes just two weeks after its new Chief Executive Richard Stanley took over and may signal it is pursuing growth outside its established markets of Singapore and Hong Kong more aggressively.

Stanley last week unveiled plans to expand DBS in China, India and Indonesia, in contrast to other banks that have been forced to shore up their books in the wake of writedowns due to the credit crisis.

"DBS seems to be taking advantage of the drop in bank debt spreads," noted Sanjay Jain, an analyst at Credit Suisse.

He said there could be three possible reasons for the move: organic growth, acquisitions, and possible provisioning against potential credit losses. But the bank said last week it does not expect any significant credit-related losses after taking a charge for the first quarter.

According to the term sheet of the deal, co-managed by Goldman Sachs (GS.N) and JPMorgan (JPM.N), it sold S$1.5 billion worth of preference shares as demand exceeded earlier estimates of S$500-S$750 million.

"The issue has been priced on very strong demand," Clifford Lee, DBS' head of fixed income, told Reuters. "Book size exceeded S$1.8 billion with books open at 9 a.m. and closing at 3 p.m."

The fixed-rated securities would offer 5.75 percent per annum for the first 10-years of the issue after which the bank has the first right to redeem its shares. If it decides to extend the maturity, DBS will offer 3.415 percent above the three-month Singapore swap offered rate.

LOAN GROWTH

Analysts said the capital raising could be needed to catch up with local rivals United Overseas Bank (UOBH.SI) and Oversea-Chinese Banking Corp (OCBC.SI) and sustain loan growth.

DBS' capital adequacy ratio was 13.4 percent, with the Tier 1 at 9.2 percent at end-March, above the regulatory requirement of 6 percent.

UOB's Tier 1 stood at 9.9 percent and OCBC's at 12.2 percent.

"If you are growing your loan book at 20-25 percent, you need more capital to sustain that growth," said David Lum, analyst at Daiwa Institute of Research.

Chief Financial Officer Jeanette Wong said in a statement proceeds from the issue would strengthen DBS' capital position and support the growth of its Asian business.

DBS shares closed up 0.2 percent at S$20.06.

The bank recorded loan growth of 21 percent in the first quarter from a year earlier, led by corporate lending, but analysts say growth could slow in the second half as a likely U.S. recession hurts Asian economic growth.

DBS, in which state investor Temasek [TEM.UL] has a 28 percent stake, took a previously announced S$86 million ($62 million) of writedowns in the first quarter on complex derivatives exposed to risky debt, which pushed its trading income into the red.

The writedown was much lower than last year when it wrote down S$270 million on structured instruments, the bulk in the fourth quarter, including debt exposed to the collapsing U.S. subprime mortgage market.

($1=1.378 Singapore Dollar)

(Editing by Jan Dahinten and Lincoln Feast)