TODAYonline

Fresh woes for Minibond holders

Cheow Xin Yi

cheowxinyi@mediacorp.com.sg

MOVES by the Monetary Authority of Singapore and the trustee of Lehman Minibond Series programme to protect noteholders faced with having their investments wiped out have hit a legal obstacle.

Potential action by lawyers for the collapsed American bank Lehman Brothers means that hopes could be dashed for Lehman Minibond noteholders who were looking to get some of their money back by : holding on to their troubled investments to maturity.

Yesterday, the Monetary Authority of Singapore (MAS) and HSBC Institutional Trust Services (Singapore), the trustee for the Minibond Series, put out statements ruling out restructuring as an option, at least for now.

Instead, they are now proceeding to “unwind” the notes — essentially taking apart the swap structures in the product and settling outstandingissues arising from that — before they can even consider restructuring. This restructuring was initially proposed as a potential way to save the investments affected by the bankruptcy filing of US investment bank Lehman Brothers in September.

Even that, however, could turn out to be a drawn-out process that could last two years or more, involving potential tricky court battles.

The trustee and PricewaterhouseCoopers — HSBC’s appointed receiver for noteholders on defaulted Minibond series — revealed they have received legal notice from US lawyers acting for Lehman that they have “reserved the right to challenge all aspects of the unwinding process”.

Still, that has not stopped the receivers from taking action to terminate the swaps — or credit protection arrangements — in the Minibond programme.

This essentially ensures that investors need not suffer further losses if any of the six reference entities linked to the programme goes belly up.

“Throughout the various stages of the unwinding process, there is a strong possibility that there will be legal challenges to resolve, which could result in prolonged litigation, before proceeding to the next stage,” said HSBC Trustee and PwC in a joint statement.

That is also why they are not able to give any valuations at this stage, and cannot realise the value of the investments by selling or liquidating the underlying collateral.

But both parties have promised to act within their legal powers to safeguard the interests of the noteholders. In mid-November they acted to remove a secondary swap arrangement embedded in the underlying securities of Series 1 to 8.

The entire Minibond series attracted local investments totalling $508 million, with $375 million of the total being sold to about 8,000 retail investors through nine distributors.

Separately, the MAS said that it has asked the trustee and receivers to “resolve the legal complexities as quickly as possible”.

The regulator said: “We expect the trustee, receivers and distributors to do their part to ensure that noteholders’ legal rights are vigorously defended, and to put in the necessary resources to do so.”

MAS also stressed that the latest developments will not compromise the complaints-handling process set up earlier to deal with allegations of mis-selling by distributors.