LONDON: The Commercial Court here started hearing yesterday the US$86.94mil (RM330mil) suit by UBS (Union Bank of Switzerland) against Tenaga Nasional Bhd over the terms of a US$500mil (RM1.9bil) bond issue.
At the same time, Tenaga is counter-suing the Swiss banking giant for alleged “gross negligence and wilful misrepresentation” over the terms of the bond issue in 1997.
According to Sunday Telegraph, attempts to reach a settlement collapsed and the inability of both sides to reach an agreement came as a surprise to all concerned.
The paper quoted analysts as saying the lawsuit would bring unwanted publicity throughout Southeast Asia for UBS, besides threatening to undermine its ability to win more business in Malaysia.
AFP said the suit would be closely scrutinised by other Asian issuers, many of whom may have entered into similar deals in 1996 and 1997, just before the regional financial crisis, when spreads were low for Asian borrowers and the US interest rates stable.
In its suit, UBS alleged that Tenaga had unilaterally terminated two options relating to the 10-year bond issue conducted by UBS, the predecessor of UBS Warburg.
The dispute is over whether UBS had the right to refinance the bond deal if rates on US Treasury fell – as they subsequently did.
Tenaga is alleged to have agreed that UBS could replace the original bonds with a new 20-year issue.
Tenaga cancelled the bond in 2001 and has refused to pay a termination fee charged by UBS, saying it was not liable.
It then filed a counterclaim alleging UBS negligently advised and misrepresented the facts when the deals were entered into and in the period leading to the termination of the transaction by Tenaga.
Mr Justice Simon has set aside three weeks for the case.
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