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Asia's Worst Deal

Wall Street peddled nearly $6 billion in bonds for Asia Pulp & Paper before the Singapore company defaulted. A cautionary tale of greed, blind optimism, and the East-West divide.

Of the many phone calls Singapore-based fund manager Julia Ho received from relentless bond salesmen late last year, one stands out. This salesman, from a leading international firm, made a hard-sell pitch for high-yield bonds issued by Asia Pulp & Paper Co. (PAP ) It sounded irresistible. APP, with $3 billion in revenues, had new, state-of-the-art paper mills across Asia, plenty of fast-growing hardwood in Indonesia, and had moved into the booming China market. It was one of the few big local conglomerates with revenues mostly in hard currency.

Of course, there was the little matter of APP's $13.4 billion debt. The pitch acknowledged that. "This is a very highly geared company," Ho, the investment director of Rothschild Asset Management (Singapore), recalls the salesman as saying. "But the fact that they were able to survive the Asian crisis is an indication of how capable the management is." The salesman referred to APP's founders, the Widjajas, an ethnic Chinese clan from Indonesia.