By SIOW LI SEN
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(SINGAPORE) Minibond investors have just been dealt a fresh blow - restructuring options are no longer on the table following legal challenges arising from the bankruptcy of Lehman Brothers.
It also means that the receivers cannot sell the underlying collateral of the Minibond notes while the lawyers fight over them, a process which can go on for at least two years.
Last night, the trustee said that lawyers acting in the Chapter 11 proceedings for Lehman Brothers in the United States, which structured the Minibond products, have reserved the right to challenge all aspects of the unwinding process.
'As a result, 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 Institutional Trust Services (Singapore) Limited.
'Hence, both the trustee and receivers are not able to give any valuations at this stage, and appeal to investors to understand that the unwinding process is likely to take considerable time,' it said, adding that the receivers and trustee will act to safeguard the interests of the noteholders.
It also said that restructuring is not viable at this stage.
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'The restructuring proposals previously received with respect to the Minibond notes have been ruled out as an option for now, due to the legal issues and complexity involved in unwinding the structures,' said the trustee.
In October, three financial institutions were said to be submitting restructuring proposals which would essentially mean taking over the underlying securities and holding them until maturity.
The restructuring proposal held out a slim hope that there might be some money for investors upon maturity.
Investors bought the defaulted Minibonds arranged by Lehman Brothers worth $508 million over the last two years, of which $375 million worth was sold to about 8,000 retail investors through nine distributors.
HSBC said that three receivers from PricewaterhouseCoopers (PwC) Singapore have been proceeding with an orderly unwinding of the Minibond note structures including the various swaps in the structures.
Even this is being challenged by the lawyers, and HSBC and the receivers said that they are aware that Lehman might intend to challenge certain aspects of the unwinding process.
Dominic Nixon, one of the three receivers, said that they were working as quickly as possible to get a resolution for noteholders here in Singapore.
'Due to the multitude of factors that are not within the immediate control of the trustee and receivers, this cannot be resolved within a short span of time.
'The receivers expect the process could take at least two years or more,' he said.
The Monetary Authority of Singapore (MAS) said that the independent financial adviser, Deloitte & Touche Corporate Finance Pte Ltd (DTCF) concurred with the decision of the receivers to terminate the swaps.
'In addition, pending further clarity over the legal issues and the resolution of any litigation involved, DTCF understands that the receivers are not presently able to either restructure the notes or to realise value by selling or liquidating the underlying collateral,' it said.
In Hong Kong, the legal challenge has tripped up a buyback process. Banks there had agreed to buy back the Minibonds after mass protests from aggrieved investors.
A report from the South China Morning Post last week said that a taskforce which agreed to a government proposal for banks to buy back the Minibonds after valuing them had to discuss whether US bankruptcy laws would prevent them from doing so.
MAS also said that the latest developments do not affect the handling of complaints of Minibond investors who felt that they were mis-sold.
'We require distributors to have a rigorous process to look into every complaint and to ensure that legitimate grievances are dealt with fairly, regardless of the outcome of these legal issues,' it said.
Noteholders who are not satisfied may have their complaints referred to the Financial Institutions Dispute Resolution Centre for mediation or adjudication.
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