Standard Chartered, a leading lender in emerging markets, is seeking to raise £1.78 billion through a rights issue in a bid to bolster its balance sheet as its core markets in Asia, Africa and the Middle East begin to feel the effects of the global downturn.

The UK-based lender said that Temasek, the Singaporean sovereign wealth fund which owns 19 per cent of the bank, was supportive of the rights issue and would subscribe in full for its entitlement of new shares.

Investors, however, sent shares in Standard Chartered down 3.8 per cent to 731p in early trading today.

The fund raising is priced at 390p per share and will award subscribers 30 new shares for every 91 shares they already hold.

Standard Chartered said it was raising the new cash at a time when the global financial downturn was beginning to have an effect on its markets.

In a trading update today, the company said economic growth was slowing in most countries although GDP prospects in its markets were much higher than in the West. The bank said that its income growth was strong and that the new funds would help it to weather the financial turmoil.

Standard Chartered's core tier 1 capital ratio, a key measure of a bank's financial strength, at the end of June was 6.1 per cent.

Adjusting for the rights issue proceeds, the core tier 1 ratio is expected to rise 7.4 per cent on a pro forma basis for the end of June.

In addition to Temasek's commitment, the rights issue is underwritten by JP Morgan, Goldman Sachs and UBS.

Temasek, the Singaporean sovereign wealth fund, could end up controlling more than a fifth of Standard Chartered. The Asian investor, which already owns 19 per cent of the bank is supporting the cash call, promising to take up to a third of the share issue, should other existing investors fail to take up their rights in full.

Peter Sands, the bank's chief executive, said that Temasek could in theory end up with 22 per cent of the bank.

Standard Chartered did not need to raise fresh capital, said Mr Sands, as its core capital ratios were within the UK government's limits.

However, he ackowledged that the outlook had changed and that investors expected banks to have more solid foundations: "Things have changed in the course of the past few weeks. We see merit in having more capital than we need."

He said that Standard Chartered would use the new funds opportunistically: "Most of our competitors are in disarray or lacking in capital and liquidity." Opportunities might emerge in the form of acquisitions but he said that the bank's preferred option was internally-generated expansion.

A key area of potential growth, he suggested, was in trade finance where Standard Chartered is active and wants to strengthen its position. Trade volumes are slowing, said Mr Sands and Asian suppliers were demanding documentary trade finance to insure payment. "At the same time, the amount of capacity supplied by banks is under pressure," he said.

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