'Lift conditions' on minibond deal

PUBLISHED : Saturday, 12 September, 2009, 12:00am
UPDATED : Saturday, 12 September, 2009, 12:00am

So-called experienced investors who poured millions into minibonds soured by the collapse of Wall Street giant Lehman Brothers a year ago want conditions barring them from a compensation deal to be lifted, Democrat lawmaker Kam Nai-wai said after a meeting with the Hong Kong Monetary Authority yesterday.

Kam accompanied 11 investors to meet Raymond Li Ling-cheung, the authority's executive director, on how to compensate minibond holders deemed experienced and other 'special cases'.

Kam said the authority would give these complaint cases priority if a settlement could not be reached with the banks. But Li said the terms of the minibond compensation deal could not be changed.

Under the arrangement announced earlier by the Securities and Futures Commission, about 2,000 minibond investors defined as either professional or experienced are excluded from the compensation deal.

The commission defines professional investors as those with a portfolio worth more than HK$8 million and at least two years of investment experience. Experienced investors are defined as those who, in the three years before their first purchase of minibonds, executed at least five transactions involving leveraged products, structured products or both. Minibonds are not corporate bonds but high-risk, credit-linked derivatives. They are marketed as a proxy investment in well-known companies.

The Legislative Council subcommittee investigating the minibond debacle is seeking details from the commission about how the compensation deal was struck. A commission spokesman declined to comment.

Dr Raymond Ho Chung-tai, chairman of the Legco subcommittee, said the authority's outgoing chief, Joseph Yam Chi-kwong, could still be called to testify as a witness after he stepped down next month.

Lehman's bankruptcy in September last year rendered minibonds credit-linked to the US investment banking giant virtually worthless and forced regulators in Hong Kong to take action against banks and brokers that sold them.

An offer by 16 banks to repurchase the minibonds from roughly 25,000 affected investors had been accepted by 19,576 of them as of Wednesday, the Monetary Authority said - an acceptance rate of 78.3 per cent. Some 204 have rejected the offer so far. The deal allows investors to sell back their Lehman Brothers minibonds for up to 70 per cent of their principal investment.

The authority has received 21,660 complaints about the products.