Shares of Malaysia's Tenaga Nasional fell sharply today on a report that investment bank UBS Warburg was suing the company over a bond option dispute that could cost the losing party over US$100 million (RM380 million).

Tenaga shares tumbled 90 sen or 8.2 percent to end at RM10, helping to drag the market down 2.3 percent

An institutional dealer said news that UBS Warburg was suing Tenaga over a bond option had sparked selling by foreign funds.

"The UBS Warburg suit is seen as bad for Tenaga as the losing party may suffer over US$100 million loss," he said.

"There was a new round of selling by foreign funds after lunch... the inaction on the part of Tenaga Nasional to respond officially also caused the share to fall."

According to Friday's Asian Wall Street Journal , UBS Warburg and Tenaga Nasional were in litigation in London over details of an put (sale) option granted to UBS Warburg in 1997 related to a 500 million dollar bond issue for Tenaga conducted by Union Bank of Switzerland, the predecessor of UBS Warburg.

The report said Tenaga's management unilaterally terminated the option last September after protracted negotiations failed to resolve the clash. UBS Warburg filed the suit against Tenaga in London in February.

Counter suit planned

Tenaga says the put option was European-style to be exercised when the 1997 bonds matured but UBS Warburg maintained the options are American-style which could be exercised at any time up to maturity.

The bond battle is likely to be closely scrutinised by other Asian issuers, many of whom may have entered into similar deals in 1996 and 1997 when spreads were low for Asian borrowers and US interest rates stable.

A well-placed source told AFX -Asia, an AFP -owned financial news wire, that Tenaga planned to countersue UBS Warburg on grounds that the bank had not acted in the company's interest as its advisor in a bond issue.

A Tenaga spokesman said a statement would be issued after the close of the stock market.