Protests asking that Lehman Brothers investments be returned to local investors have lasted several days. AP

The Hong Kong government is urging distributing banks to buy back Lehman Brothers minibonds from investors at their estimated market value, providing bond holders a quicker way to get their money back than waiting for the long liquidation process to end.

As such, 80 percent of the bond holders are expected to recover 60 to 70 percent of their investments, a source said.

Lehman minibond distributors, including 16 banks and three brokers, were at a meeting with government officials yesterday.

Financial Secretary John Tsang said the government reached an agreement with HSBC - the bond trustee - to disclose to the distributors details about the underlying collateral of the minibonds.

He said the proposal called for banks to buy back the minibonds at their estimated value.

"It will avoid the need for investors to go through a long and tedious liquidation process," Tsang said.

A few banks responded positively, and other distributors said they will consider the proposal, he added. However, Tsang admitted that investors are unlikely to get all of their money back.

According to the Securities and Futures Commission (SFC), the outstanding value of minibonds in which Lehman Brothers was the swap guarantor is HK$12.57 billion. The amount that investors may get back depends on the underlying collateral of the credit-linked notes.

The market estimated that about 80 percent of the investors who are holding HK$10 billion worth of minibonds are likely to get 60 to 70 percent of the minibonds' value back.

If the distributing banks agree to buy back the minibonds from investors, they will offer a set price to the minibond holders.

The banks will return the premium to the minibond holders if the selling prices of the collateral after liquidation are higher than the offering prices to minibond holders.

A source said the banks may bear the risk if the value of the collateral drops further, as they are unlikely to pass the losses on to the minibond holders.

Secretary for Financial Services and the Treasury K C Chan said he hopes banks respond to the proposal as soon as possible. "This is the best option," he said. "Investors can get some of their money back quickly and don't need to wait until the liquidation process ends."

The source said banks are urged to make a decision next week so investors may get their money back by the end of this year. Otherwise, it may take six months to one year for the liquidation process to come to an end.

The Hong Kong Monetary Authority (HKMA) has received 5,567 complaints concerning Lehman-related products, among which, the regulator has opened investigations for 22 cases.

Raymond Li, executive director of the HKMA, said the regulator is handling complaints related to misleading sales of minibonds.

(HK Edition 10/07/2008 page2)