London-based lender to sell 46 million shares in a placement to pay for US$1.2 billion acquisition of loss-making bank Standard Chartered, which focuses on lending in emerging markets, will buy Taiwan-based loss-making Hsinchu International Bank for US$1.2 billion, stepping up its expansion in Asia. The London-based bank will fund the purchase by selling 46 million new shares through a placement, according to a sale document obtained by fund managers. The sale price will be determined after the sponsor receives a response from investors. The placement represents 3.7 per cent of the lender's issued share capital. Standard Chartered shares were trading 2.08 per cent lower at GBP13.68 (HK$199) in London in the late afternoon yesterday from Thursday's close of GBP13.97. Hsinchu, which has a market capitalisation of US$861 million and US$12.7 billion in assets, made an after-tax loss of US$83 million in the first half on bad consumer debt. 'Although the banking industry in Taiwan continues to be affected by the significant downturn in the consumer credit cycle, we believe that the cycle is turning and that Taiwan offers attractive growth prospects,' Standard Chartered group chief executive Mervyn Davies said. The prospect of an improved credit cycle was questionable, according to Kent Yau Ho-yin, a deputy head of Hong Kong research at Core Pacific-Yamaichi, highlighting the risk Standard Chartered was taking. 'It is not certain whether the credit cycle really will improve, and it's still uncertain whether the growth [of earnings] will resume to be as good as in the past,' Mr Yau said. However, many Taiwan merchants had business in the mainland, and Standard Chartered had an advantage as it already had a presence in the mainland, he said. Standard Chartered offered NT$24.50 per share for Hsinchu, or 2.3 times Hsinchu's book value at the end of June, or 12.7 times its earnings at the end of last year. The price represents a 40 per cent premium to the Taiwan bank's NT$17.45 close on Thursday. The acquisition, which may be completed in November, is subject to a minimum acceptance condition of 51 per cent. It has received commitments to accept the tender offer equivalent to 20.81 per cent of shareholders. Mr Davies said the acquisition will contribute to earnings and achieve a double-digit return on investment in 2008. The bank expects earnings will come from a rise in revenue and cost savings, of which, pretax cost synergies will amount to US$20 million per year. Standard Chartered said it has no plan to shed staff. 'Hsinchu is an outstanding opportunity to grow Standard Chartered's presence in one of our core markets,' Mr Davies said. 'We will drive further growth by combining Hsinchu's products and processes as we have done successfully in other markets.' Taiwan will be Standard Chartered's fourth-largest market by income after the acquisition, accounting for 8 per cent of the group's income based on last year's figures, compared with 3 per cent before the acquisition. Hong Kong's contribution will decline to 21 per cent from 22 per cent.