<ST>Temasek invests another $1.2b in Merrill

Temasek invests another $1.2b in Merrill
SINGAPORE state investor Temasek Holdings has pumped in an additional US$900 million (S$1.2 billion) in Merrill Lynch as part of the United States broker's latest capital-raising effort.

'Temasek confirms its commitment of US$3.4 billion in the public offering by Merrill Lynch,' spokesman Myrna Thomas said in a statement on Tuesday.

'The commitment includes a sum of US$2.5 billion arising from a re-set payment which Merrill Lynch has agreed to pay to Temasek as an adjustment to the price of Temasek's original investment made in December 2007,' she added.

Temasek had invested a total of US$5 billion in Merrill in December and February at US$48 per share, but Merrill shares have fallen by about half since then.

The deal had a feature that required Merrill Lynch to compensate the Singapore investor should the US firm subsequently raise new capital at a lower price.

In a broad move to clean up its troubled balance sheet, Merrill Lynch said on Monday it will sell a big slice of its toxic asset-backed securities and issue new stock to raise US$8.5 billion of fresh capital.

The world's largest brokerage, struggling to right itself as the credit crisis continues, said it will issue more than US$200 million new common shares as part of the deal. Merrill said it will write-down US$5.7 billion because of additional losses on the sale of mortgage securities and hedging contracts.

Chief Executive John Thain, who joined Merrill Lynch last year, had vowed in the past he wanted to avoid using a public offering to raise money. The latest move comes just over a week after Merrill reported a US$4.6 billion second-quarter loss, where he raised US$8 billion of much needed capital from asset sales instead of diluting the stock by issuing more shares.

Perhaps the biggest benefactor in the deal is Temasek Holdings, the Singapore sovereign wealth fund that is already one of Merrill's biggest investors. The firm agreed to buy US$3.4 billion worth of shares at a yet-to-be determined price, a potentially large percentage considering shares of the brokerage are down 54 per cent this year.

In addition, Merrill's management plans to buy 750,000 shares.

The company made the announcement after the close of trading on Wall Street. Its shares closed down 11.6 per cent to US$24.33, and is down 54 per cent this year. The stock drifted down 2 per cent in after-hours trading.

Merrill said it will sell a large portion of asset-backed securities and terminate hedges linked to bond insurers; those are two of its most troubled areas since the credit turmoil began last year. It reported earlier this month its fourth straight quarterly loss and write-downs from failed investments approaching US$40 billion.

Lone Star Funds, a Dallas-based distressed-debt investors based run by Mr John Grayken, will acquire asset-backed securities with a nominal value of US$30.6 billion for US$6.7 billion. The sale will help cut Merrill's exposure by US$11.1 billion from its level on June 27, leaving US$8.8 billion of these securities on its books.

'The sale of the substantial majority of our CDO positions represents a significant milestone in our risk reduction efforts,' said Mr John A. Thain, Chairman and CEO of Merrill Lynch.

'Our consistent focus has been to opportunistically reduce risk, and in order to take advantage of this sizable sale on an accelerated basis, we have decided to further enhance our capital position by issuing common stock,' Mr Thain said in a statement. 'The actions we announced both today and on July 17 will materially enhance the company's capital position and financial flexibility going forward.'

Earlier this month, Merrill sold its stake in financial news and data provider Bloomberg LP for US$4.43 billion as a way to raise capital while avoiding diluting current investors' holdings by selling new securities.

The brokerage said it is also paying Temasek US$2.5 billion to reset some provisions on a previous stake sale. Holders of Merrill's mandatory preferred stock agreed to move US$5.4 billion into the share offering, and will be paid an additional US$2.4 billion from dividends as a result of the exchange.

Merrill also will write down US$500 million related to the cancellation of hedges with XL Capital, and another US$800 million from settlements with other bond insurers. -- Reuters, AP.