UBS In Costly Bond Dispute

The New York Times reports that UBS Warburg (UBSW) is now involved in what may become a costly dispute with a company 78% owned by the Malaysian government.

UBSW helped Malaysian utility company Tenaga Nasional Berhad sell $800m in bonds in 1997 in what was hailed at the time as a financial coup for both parties. It now looks as if the relationship between the two has turned sour.

Under the terms of the deal UBSW had the right to refinance the bond deal in the event that US Treasury rates fell. Tenaga disputed this and UBSW sued the company early this year. The case attracted little publicity until last week, when the revelations caused Tenaga's share price to fall 8%. Tenaga countersued in May and the matter is now heading for the courts.

The whole issue looks likely to be a no-win situation for both the bank and the utility company. Whatever happens, this dispute will no doubt tarnish UBSW and may well threaten its ability to transact new business in Malaysia. Tenaga's standing in the international debt markets also looks likely to suffer as a result of the wrangle.

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