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Branch Banking & Trust is about to enter into a USD20 million (notional), 10-year callable interest-rate swap with a corporate client. Rich Miller, v.p., risk management in Winston-Salem, N.C., said the bank reserves the right to call after seven years. He declined to name the client, except to say that it is a corporate that has issued a bond. The rates have not been determined, but Miller estimated that the client will pay a fixed rate of around 5.45% and will receive a U.S. dollar LIBOR-based rate. The client is looking to fix its liability when interest rates are low and their long-term future direction is uncertain, he added.

Investors bought somewhere on the order of a yard in short-dated U.S. dollar calls against the yen last week, struck around JPY124 and JPY125, anticipating dollar strength as Japanese corporates reinvest money they had repatriated. Japanese corporations last week repatriated funds ahead of fiscal year end in order to book profits, said traders in New York. With the new fiscal year, they are expected to send those funds back overseas. Spot was around JPY123.5 when the trades were put on mid last week. Last Thursday, implied vol for a one-week position with a strike of about JPY124 would have been roughly 15.5%, said Craig Puffenberger, managing director and global head of foreign exchange trading at Credit Suisse First Boston in New York.

Boykin Lodging has entered into an USD83 million (notional) interest-rate swap with Fleet National Bank. The notional size of the swap matches the outstanding floating-rate debt on the Cleveland real estate investment trust's USD108 million term loan, provided by Lehman Brothers, said Paul O'Neil, cfo and treasurer. "Rates have dropped significantly over the last several months and we thought that this was the best time to lock in attractively low rates and minimize interest rate volatility," he noted. "We are a real estate company, not a bank, so we didn't want to have to bet on rate movement," he added.

Five-year credit protection prices on BHP have fallen about five basis points to 43 basis points since the announcement last month of a merger between Australia's BHP and the U.K.'s Billiton. Graham Jarvis, credit derivatives trader at Westpac Banking Corp., said there should be additional activity in the name once shareholders approve the merger in the upcoming weeks. Four trades were said to be executed on the back of the news, in the ballpark of 43bps for five year protection. BHP spreads remained at 40bps/45bps at press time for five-year protection.

Higher-than-anticipated U.S. consumer confidence levels and the European Central Bank's decision not to lower interest rates caused the euro spot to decline last week, but this did not deter some investors from buying short-term euro calls. Shortly after the ECB made its announcement, a foreign exchange trader in New York said that trading of one and two-month euro calls was still fairly heavy, with typical notional sizes of between USD100-200 million.

Standard Chartered Bank is looking to become the first bank to offer over-the-counter options on the Indian rupee. "We want to be the pioneer in bringing rupee options to India," said Madhav Shankar, manager of derivative products in Mumbai. He believes there is strong corporate interest in using currency options to hedge U.S. dollar exposure, declining to name companies it has approached. StanChart plans to approach the Reserve Bank of India for approval, Shankar said, declining to put a timeframe on the move.

Market observers reacted coolly to last month's announcement of a merger between three of Taiwan's largest state banks, Bank of Taiwan, Land Bank of Taiwan and Central Trust of China. In an Asiamoney straw poll, "window dressing," was the phrase most used by analysts to describe the government-inspired move. While that might seem an odd choice of words for a merger that will create a bank with a 20% share of the Taiwan banking market (in terms of deposits), it illustrates few are confident that the merger will improve the state of the industry any time soon. Clearly in line with market thinking, Standard & Poor's downgraded its credit rating for Bank of Taiwan just two days before the merger plan was formally announced.

Taiwan's Depositary Receipts (DR) market was reopened last month by Sunplus Technologies' first foray into the international equity markets, a US$191.4 million global depository receipt (GDR) arranged by UBS Warburg. The Sunplus deal is the first Taiwanese DR in six months. UBS Warburg attempted to place Sunplus in the market in September last year, says a Taipei-based banker, but the plan had to be shelved because of the rapid decline in high tech stock values.

Its still early days for the Asian derivatives market. A fragmented regulatory regime and tardy market liberalization are just two of the obstacles to its development. Nonetheless, banks are upbeat about the sector, especially about the potential of the China market. Joy Lee reports.

The Malaysian state-owned electricity company Tenaga Nasional Berhad has completed a deal to replace just over half of its shortest-dated debt with 10-year financing. The deal involved two interlinked parts; a new US$600 million 10-year bond offer, and a cash tender offer for existing Tenaga short-dated bonds, consisting of US$300 million of 7.2% notes due on April 29, 2007, which have a put option in April 2002, and $600 million of 7.875% bonds due on June 15 2004. The size of the 10-year bond was not initially fixed, but depended on the level of redemption of the shorter dated bonds, given that the 10-year issue was not primarily designed to raise new finance, but to replace the two outstanding bonds, so as to increase the overall maturity of Tenaga's outstanding debt. The tender price was set at 120 basis points (bps) over for the 2004 bonds and 80 bps over for the puttable 2002. The tender offer was launched just slightly ahead of the bond offer, and to provide the 10-year bond's joint lead managers, Lehman Brothers, HSBC, and CIMB, with an early idea of interest in the tender, the tender offer's deal managers, Lehman and HSBC, effectively penalized investors participating after the first 10 days of the 20-day tender period (a period mandated by SEC regulations), by offering them 3% less. Because it was considered attractively priced, the tender take-up was above what HSBC and Lehman had expected, with 53% of the outstandings redeemed, worth US$479 million at par value, for which Tenaga paid around US$517 million. The Baa3/BBB rated power company then launched a US$500 million Rule 144a Regulation S 10-year global bond issue. The issue size was then increased to US$600 million, and priced at 99.594, with a coupon of 7.625%, to yield 295 bps over US Treasuries.

Thailand's new government has announced the setting up of a Thai Asset Management Corporation to sort out the country's banking problems once and for all. But does the Bt1.35 trillion scheme adequately address the legal and structural issues that are at the heart of the NPL problem? By Ben Davies.

Malaysia is no longer an attractive proposition for fund managers. In fact it's a dirty word. Will the introduction of new corporate governance codes on June 1 – the strictest in Asia – restore faith in the country's companies? Or have foreign investors simply had enough? Matthew Montagu-Pollock reports.