Temasek Reconsiders StanChart Stake

Patrick Jenkins in London and Jeremy Grant in Singapore
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Singapore investment fund Temasek has sounded out potential buyers for its £6 billion stake in Standard Chartered, potentially reigniting talk of a takeover of the emerging markets bank.

The fund, which is owned by the Singapore government, had been judging buyer interest for its 18 percent shareholding in recent months, said people close to the situation.

Bankers said earlier momentum for a sale fell last month as StanChart’s shares dropped 20 percent on the day it was accused by a U.S. regulator of breaching U.S. sanctions on Iran. After settling the dispute with a $340 million payment, the bank’s share price has rebounded.

Temasek became StanChart’s biggest single shareholder six years ago, buying out the 11.5 percent stake of the Khoo family for a small undisclosed discount to its then market value of £2.3 billion. The family had been the bank’s protector since the 1980s, when it had become the subject of an unwelcome bid from Lloyds Bank.

StanChart, which has its headquarters in the UK but a business focus on the emerging markets of Asia and the Middle East, is one of the few globally active banks to be largely unscathed by the financial crisis. It has attracted interest from the likes of JPMorgan and Santander, according to bankers. Although private discussions have taken place, nothing has come of them, largely because StanChart’s robust valuation – its market capitalization is £35 billion – would make it hard to swallow.

StanChart trades at a 1.4 times multiple of book value at a time when many rivals, particularly in Europe, trade on less than half that. Analysts said Temasek might be keen to take advantage of the relative strength and reduce its exposure to financial services, given the economic uncertainty.

Bankers believe any ambition Temasek might have had to engineer a merger between StanChart and another of its investments, Singaporean bank DBS , has faded, given the complexities and regulatory hostility to big banking mergers.

Temasek has hired two western bankers – Greg Curl from Bank of America Merrill Lynch and John Cryan, former finance director of Swiss bank UBS – to help oversee its stakes in businesses in the U.S. and Europe. People close to the situation stressed that there were no live discussions with any potential buyer. Both Temasek and StanChart declined to comment.

Temasek signaled a move away from its StanChart stake a year ago when it issued an innovative convertible bond that would convert into StanChart shares under some circumstances.

The three-year bond, which raised more than $600 million, would potentially shave nearly 1 percentage point off the fund’s total stake if the bank’s shares rise beyond the prerequisite 27 percent premium to the then share price of £14.29. The shares closed on Monday at £14.81.

After the row over sanctions, the bank promised a shake-up of its board, which was criticized by shareholders earlier in the year. Temasek withheld support for the re-election of executive directors except chief executive Peter Sands and two non-executives.