Barron's Online -- February 16, 1998
South Korea Deal Set To Kick Off
Bonanza for Wall Street:
Billions in New Asian Debt
By JACQUELINE DOHERTY
The Asian crisis may have caused headaches for investors, but for Wall
Street underwriters it could be a bonanza.
Asian countries need to bolster their foreign-exchange reserves and are
looking to the deep pockets in the global capital markets. The first deal is
likely to come from South Korea, which, of course, is the farthest along in
renegotiating its debt and getting its financial house back in order, notes
Thomas Trebat, managing director of emerging-markets research at
Citicorp Securities.
South Korea needs to borrow about $10 billion in 1998 and 1999,
capital-market players estimate. The first deal won't occur until after the
debt-exchange offer with foreign banks gets inked, probably in late
March.
But if that bank deal is completed and the country continues its reforms,
South Korea could sell as much as $2 billion in global bonds during May
or June, our sources say -- not much more than that, because South
Korea needs to ensure the offering's success, leaving investors happy
and coming back for more.
"Everybody is talking to the government of Korea, but a decision is a
long way away," cautions a capital-markets guru.
From an investor perspective, however, the time to take a shot at Korean
debt may be today, not in three to four months when the new deal
comes to market. There is no sovereign debt outstanding, but the
Korean Development Bank has a handful of large bond offerings to
choose from. Citibank's Trebat likes the KDB bonds due in 2001. They
have yields 3.9 to 4.3 percentage points above Treasuries' and could
easily get a ratings upgrade before the new South Korean deal hits the
market this spring. The new supply could cause KDB's bonds to trade
down slightly, but the move would probably be a temporary, technical
blip.
Jerome Booth, head of markets research at ANZ Investment Bank, also
believes the bonds present a good value. KDB paper could benefit from
Korean officials' actually marketing the offering to investors during a
roadshow. And the global bond market should easily absorb the
multibillion-dollar deals: The Brady issues are much larger than Korea's
potential deal and they have found buyers.
By year-end, Booth predicts Korea's bonds could trade with a yield less
than two percentage points above Treasuries -- pretty amazing,
considering that just a few months ago, at the height of the crisis, they
traded eight to nine percentage points above Treasuries. "There will be a
gradual trend to improvement, subject to economic reforms taking
place," he says. Who would follow Korea? The order may be: the
Philippines, Thailand, Malaysia and finally Indonesia, our capital-market
pros postulate.
Leave it to The Donald to cause a stir.
News that Donald Trump hoped to sell all or part of his casino empire
sent Trump Atlantic City bonds on a rollercoaster ride. Rumors of his
intentions boosted them from 98 to about 100. And word that he had
hired investment bankers sent the bonds soaring to 108. By the end of
the week, they had settled back to 104.
Now, with the debt still trading at a premium, there's debate about
whether investors should take their dough and run or stay put.
"We think people should take profits in the Atlantic City bonds now,
because we don't think a sale [of the parent Trump Hotels & Casino
Resorts] is likely," says John Maxwell, a high-yield analyst at Societe
Generale Securities Corp. "I can't see a scenario where this company is
worth $30 a share no matter how I crunch my numbers." That's what
Trump reportedly wants for the stock, which closed Friday at 10 13/16.
Maxwell notes that large gaming companies that might be candidates to
buy the Trump empire either already have Atlantic City properties or are
in the midst of developing properties from scratch. Meanwhile, a
real-estate investment trust would have to buy back the bonds to make a
deal work. Such a move would be extremely expensive -- Trump
Atlantic City alone has $1.3 billion of debt outstanding. And that expense
would reduce the amount a REIT could offer for the stock. Doubters also
point out that The Donald seems to have a penchant for putting hotels on
the block only to change his mind.
However, there are some who believe the bonds still offer value even if a
sale doesn't occur.
The Atlantic City bonds have an 11.25% coupon, which is almost never
seen in today's low interest-rate environment, points out Steven
Ruggiero, director of high-yield securities research at Chase Securities.
The bonds trade with a yield 4.72 percentage points above Treasuries,
while most similarly rated bonds are sold in today's market at 3.25-3.50
percentage points above Treasuries. In addition, the bonds are backed
by the first mortgage on the Trump Taj Mahal and Trump Plaza hotel
casinos in Atlantic City.
"You shouldn't buy these bonds because you think a deal will get done.
You should buy them because they offer good value," advises Ruggiero.
And then if the deal does get done, consider it a welcome bonus.
Because if a REIT does buy the properties, it would need to buy bonds
back from investors through a tender offer, and the bonds could trade as
high as 119. If there is no sale, the bonds have a potential downside of
four to six points and the upside is 15 points. Not bad.
One additional complication: Trump's Indiana riverboat casino is running
into some snags due to sharp competition and disruptions from the
construction of a parking facility. Analysts expect it will need funds from
the Atlantic City properties to meet debt service and capital expenditures
this year. When that happens, it could push Atlantic City bonds down a
few points and provide a better buying opportunity, Ruggiero adds.
Any time too much money chases too few deals, you can be sure some
issuer will push the envelope just a little too far.
Such may be the case with FWT, better known as Fort Worth Tower.
The company makes towers that send signals for cellular and PCS
(personal communications services) companies. In November FWT
sold $105 million of 9 7/8 % senior subordinated notes due in 2000
through underwriters led by BT Alex. Brown in the 144a
private-placement market to junk-bond investors.
Initially, the deal traded well, rising to 101 and then 102 by year-end. But
on January 15, FWT filed with the Securities & Exchange Commission
to convert the private notes into public securities. Normally such a filing is
a nonevent. But this time it threw investors into a tizzy and sent the bond
price tumbling to 92, where it languishes today.
The reason: The document includes FWT's financial results for the
quarter ending October and they were less than rosy. For the six months
ending October 31, the company posted net income of $5.32 million,
compared to $5.4 million in the same period in 1996. The bottom line
failed to grow as expected because expenses almost doubled and
revenues didn't grow more quickly.
Such results cast doubt on FWT's representations at the roadshows for
the deal in November. FWT said it expected $21.7 million of earnings
before interest, taxes, depreciation and amortization for the year ending
April, one source reported. However, for the six months ending October,
the company reported only $6.2 million of EBITDA, which would leave
them quite short of their target.
The company's response: "We disclosed all of the material information
we had at the time of the offering. Had we had the October results at the
time of the offering, we would have disclosed them." As for the EBITDA
figure, a spokesman added: "The $21.7 million figure is high but we
can't comment any further." BT officials declined to comment.
Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.
======================================
Dow Jones Newswires -- February 14, 1998
S. Korea Parliament Passes Economic,
Labor Reform Bills
AP-Dow Jones News Service
The new legislation, among other things, gives the country's bloated,
debt-ridden conglomerates the freedom to trim their work forces,
effective immediately, and become more competitive.
In return, it requires the family-run conglomerates, known as chaebol, to
make their financial books transparent by eliminating the practice of
hidden cross-funding by their many subsidiaries.
Such reorganization was deemed vital by the IMF and most Western
governments to woo back foreign investors who fled the country last
year, aggravating a financial crisis.
But the labor unions, accustomed to decades of lifetime employment,
have resisted the layoff bill. Experts say the new law will drive up to 1
million workers out of their jobs.
Until now, layoffs have been virtually impossible without the approval of
labor unions or a court.
The unions grudgingly accepted layoffs early this month in exchange for
greater labor freedom. But two days later, they scrapped the agreement
and called for a nationwide strike to kill the bill.
Then on Friday, bowing to concern that labor unrest would push the
country deeper into financial turmoil, the workers backed down and
canceled the strike.
The layoff bill had bipartisan support. But the opposition Grand National
Party, which controls Parliament, had blocked the whole reform package
while opposing a separate government-proposed bill that would give the
presidential Blue House the power to draw the annual government
spending plan.
The compromise was struck when the rival parties agreed to pass layoff
and other economic restructuring bills by the midnight deadline while
extending the assembly session until Monday to discuss the disputed
bills.
Copyright © 1998 Dow Jones & Company, Inc. All Rights Reserved.
========================================
Italian Leftists Change Party Name
Saturday, February 14, 1998; 10:36 p.m. EST
FLORENCE, Italy (AP) -- Italy's leftist parties ended a congress
Saturday with a new name, new symbol and appeals for unity.
``The conditions now exist to work together,'' declared Massimo
D'Alema, leader of the former Communists. ``No one is left out of the
challenge.''
Until Saturday, Italy's ex-Communists were called the Democratic
Party of the Left. By changing its name to the Democrats of the Left,
Italy's largest party hopes to unify a myriad of leftist splinter groups
under its banner.
During the meeting, D'Alema said the Left party would drop the
hammer and sickle from its symbol and replace it with a rose and the
stars of the European Union.
D'Alema and other Left Party leaders said they were trying to emulate
the image and policies of other Socialist parties in Europe, especially
Tony Blair's Labor Party in Britain.
While the small but influential hard-line Communists will remain on
their own, it was not immediately clear how many of the leftist splinter
groups would join Democrats of the Left.
The ruling center-left coalition, dominated by the newly renamed party
in an alliance with a small number of former Christian Democrats led
by Premier Romano Prodi, will remain the Olive Tree.
The weekend congress was billed in the media as a major
development in Italian politics. But it was only the latest in a flurry of
name-changes and realignments since a massive corruption scandal
first struck in 1992.
The scandal caused the collapse of the powerful Christian Democrats,
who had run the country since World War II, and the Socialists, who
took on a major role in Italian politics in the 1980s.
© Copyright 1998 The Associated Press
