Apollo Investment Management 

UAF & Euroclear:  lessons and issues

Readers of earlier columns will be aware that the biggest disaster in the short history of the Apollo 001 Fund has been the Union Asia Finance convertible bond, bought despite the company's known financial predicament on the strength of a full and very clear guarantee from the Bank of Thailand, posted in English on the central bank's official website. The bank then started to wriggle, and ultimately defaulted on its commitment. In undignified fashion, it ignored all investor representations. For the background, see Perfidious Thais, my article of 3 March 1999, and my short note of 15 June when I discovered that other fund managers had been similarly suckered before me.

I cut the (substantial) loss on this position in July 1999, as the bond faced delisting. The decision was not easy, as BankThai's inadequate offer of zero-coupon baht paper would still have represented a yield to maturity of well over 20%, whereas a comparable domestic yield would have been in single digits - but only if paid, and before taxes and expenses, and with grossly inadequate documentation it was far from clear whether our claim (to be individually negotiated, not as a class) would be enforceable.

Painful as it is to revisit this, I shall attempt to list some of the dangers, misconceptions and possible policy issues which occur to me, in no particular order of priority.

Claire Barnes, 5 September 1999

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