A mammoth convertible bond would minimise the dumping of Government-owned shares on the market but could spell disaster if the Hong Kong stock market continued to flounder, analysts say.
Most banks competing for the mandate as adviser to Exchange Fund Investment (EFI) - the body charged with liquidating the Government's $158 billion portfolio - advocated the use of convertible bonds to place some of the shares, sources said.
However, Deutsche Bank is reported to have offered to issue a 10 billion euro (about HK$87.16 billion) convertible bond, the biggest euro-denominated bond yet assembled.
Such a deal would remove about half of the Government's portfolio in one transaction.
The bond most likely would have a five-year maturity, before which investors could convert it to the underlying shares if the pricing was in their favour.
Analysts said that such an issue could attract a premium over the market price of the shares, but would leave the Government at risk of being left with the shares at maturity, and a substantial loss, if the Hong Kong market traded lower in the coming years.