By 19 October, 2011

Singapore's state-owned investment company, Temasek Holdings, has raised S$650 million ($512 million) from the sale of zero coupon bonds exchangeable into Standard Chartered shares.

The offering, which could be increased by S$150 million if an overallotment option is exercised, was priced at a 27 per cent exchange premium, the top of an indicated 22-27 per cent range, bookrunner Bank of America Merrill Lynch said on Tuesday.

Order books on the offering, which launched after the market closed in London on Monday when Standard Chartered shares ended at 1,429 pence, were covered within an hour, BofAML said.

The forex rate was set at S$1.9997 to the pound.

Standard Chartered shares were down 4.6 per cent at 1,363 pence by 1110 GMT, underperforming a 2 per cent sector fall.

The October 2014 bond represents 0.9 per cent of Standard Chartered's share capital, and Temasek's 18.1 per cent stake will unlikely be reduced unless the London-listed bank's share price hits the exchange price.

Temasek, which has a net portfolio value of S$193 billion, has built up its holding in Standard Chartered since buying an 11 per cent stake five years ago.

"If they were selling their stake (now), that would have gone out at a discount to the current market price, or very close to it," said a source close to the deal. "This way they have either got a sale price of 27 per cent premium to the current market price or they have got zero per cent money for three years."

Zero coupon exchangeables with such a high exchange premium are rare, and Temasek's deal reflected a combination of a low interest rate environment and volatile equity markets, the source said.

The bond is attractive to investors, he added, because it has lower implied volatility than the stock itself.

Temasek, which said proceeds would be used for "funding for ordinary course of business", is among the sovereign wealth funds who have been rumoured to be considering helping recapitalise euro zone banks.

Banks such as Deutsche Bank , UniCredit and BNP Paribas may all need to raise funds to bolster their capital under a looming plan to revive investor confidence.

Standard Chartered declined to comment on the sale.

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