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The Capital Markets Masterplan released by Malaysia's Securities Commission in February is a breath of fresh air. The document represents in detail the views of some of the country's most progressive financial reformers. Matthew Montagu-Pollock reports.

The sparkle emanating from newly revamped downtown Kuala Lumpur is only a sheen. Although foreign investment remains strong, sluggish growth, a declining economy and the rekindling of racial tensions indicate that Malaysia has not truly shed its financial and political woes. Matthew Montagu-Pollock reports.

Another landmark from DBS sees Singapore become the first Asian nation to allow its banks to issue hybrid tier one capital. It gives DBS a useful capital management tool and shows an accommodating attitude in Singapore. By Chris Wright.

What everybody feared finally happened in mid-March. Asia Pulp & Paper, the Singapore-based, US-listed conglomerate with assets in Indonesia, China and India, and more than US$10 billion in debt, announced a standstill on debt payments in advance of a total restructuring. As rating agencies rushed to downgrade APP to default level, creditors slapped in lawsuits to Singapore courts. ABN Amro Bank, which is demanding US$31 million from three of APP's local Indonesian subsidiaries, leads a pack of eight creditors. But in Jakarta, the Indonesian Bank Restructuring Agency (Ibra) had been even faster on its feet in anticipating potential fallout from the biggest emerging market default ever.

The sparkle emanating from newly revamped downtown Kuala Lumpur is only a sheen. Although foreign investment remains strong, sluggish growth, a declining economy and the rekindling of racial tensions indicate that Malaysia has not truly shed its financial and political woes. Matthew Montagu-Pollock reports.

Societe Generale Australia was on the ball when the bank spotted the opportunity to arbitrage between spread widening for auto sector credits in the US dollar market and spread widening for that sector in Australia. For the first time in the Australian market, the bank came up with the idea to buy US dollar bonds, repackage them into Australian dollar notes and sell them on to local investors. But while the bank was marketing the deal, auto sector spreads at home blew out, leaving bankers wondering if SG made a turn on the deal or hit the skids. In early March, SG Australia used its multi purpose ACE Funding securitization vehicle and sold A$100 million (US$49.1 million) of term market bonds to local Australian investors collateralized by global US dollar bonds that had been issued by Ford Motor Credit. The underlying Ford bond pays a fixed rate coupon semi-annually, but SG repackaged them as quarterly pay floating rate notes.

Even the most ardent devotees of disinvestment in India were stunned when, in late February, government-owned Bharat Aluminium announced the sale of 51% of the company for Rs5.15 billion (US$110.5 million) to Sterlite Industries. More predictable was the labour strike that ensued – opposition to strategic sale is still strident in the country. Sterlite's bid was double the sum offered by Hindalco, part of the Mumbai-based Aditya Birla group, and far ahead of the other short-listed bidder, Alcoa of the US. Other foreign companies that had initially shown interest, including Kaiser Aluminum, BWA of Germany, Norsk Hydro of Sweden and the UK's Billiton, were not in the reckoning.

India's stock markets crashed spectacularly at the beginning of March and the sector has since taken on the plot of a Bollywood film script – with industry rumours, allegations, and shock resignations at government level all fuelling the spectacle. The BSE 30 Sensex (the Bombay Stock Exchange's sensitive index) lost nearly 13.5% between February 28 and March 20 as it dived from 4,247 to 3,672. March 20 also saw the lowest trade volume in recent years – Rs10 billion (US$214.6 million) – a tenth of daily trades prior to March 1.

Japan's Government Housing Loan Corp (GHLC) stepped confidently into the residential mortgage backed securities (RMBS) fold last month, sparking hopes that Japan's securitization market is expanding. Touted as a benchmark deal, it represents the first agency deal not guaranteed by the government. Joint led by CSFB, Goldman Sachs and Sanwa Securities, the corporation floated ¥50 billion (US$406.8 million) worth of mortgage loans. This should be followed by similar transactions each quarter with GHLC planning to issue ¥200 billion in mortgage backed securities each year – small by comparison to the agency's holdings, but a significant development nonetheless.

Australia's largest radio broadcaster, Austereo, has yet to trade at its reduced issue price of A$1.85 (US$0.92), lending weight to the belief that its recent float was not only overpriced, but failed to take into account mounting competition in the radio market. Analysts say the threat of competition from rival DMG Radio was mistakenly overlooked – or well covered up – during the run-up to the float. The deal, which started out as a bookbuild, raised some A$67 million less than expected – a figure that was well short of Austereo's expectations and those of its parent, Village Roadshow. Global lead managers were Merrill Lynch, Credit Suisse First Boston and Macquarie Bank. Co-lead managers were Salomon Smith Barney and CIBC.

Investors Management Group is planning a spending spree of up to $300 million in seasoned 7.50% conventional MBS pass-throughs over the next several weeks because it thinks the refinancing wave is over and mortgage rates will begin to back-up. Kathy Beyer, portfolio manager of the Des Moines, Iowa-based fund, says the timing reflects the fact MBS have under-performed year-to-date, and are poised for a rally should Treasuries continue to pare the gains they've made in the first quarter. This would bring her MBS allocation up to a neutral weighting on her firm's $2 billion bond portfolio, from 20% to 35%. Also, the refinancing wave that hit MBS so aggressively in the first quarter--the Freddie Mac survey of 30-year mortgage rates is now at 6.89%--makes seasoned bonds, or paper that has survived several pre-pay waves, more valuable.

Up-front fees on both pro rata tranches and institutional tranches reached their annual highs as fees on pro rata pieces jumped up to 5.2 basis points and fees on institutional pieces to 3.1 for March 2001. According to Portfolio Management Data, fees on pro rata tranches from the three months ending March 2000 were 2.9 basis points and fees on institutional tranches were 2.1 basis points for every one million dollars committed in March 2000.