By Francis Chan and Fiona Chan

TWO potential white knights have stepped up to try to save Minibond investors from losing their entire investment following the collapse of United States investment bank Lehman Brothers.

HSBC Institutional Trust Services, the trustee of Minibond Series 5 and 6, yesterday confirmed that it had received two proposals from financial institutions.

They are interested in taking over from Lehman as the swap counterparty for the notes and holding them to maturity.

Both are 'international financial institutions with operations in Singapore', the Monetary Authority of Singapore (MAS) said yesterday. Neither was named, and the proposals are currently confidential as the financial institutions are finalising the details and need the agreements of the relevant parties, the central bank said.

If one of the institutions proceeds, Minibond holders will almost certainly get back more from their investments at maturity than if they had been forced to cash out now. This possible solution is what Minibond investors had petitioned for earlier this month after realising that they may end up with nothing.

'It's definitely good news but I guess it's still early days and we'll have to look at the conditions and details of the proposal,' said an investor who wanted to be known only as Mrs S.H. She had signed the petition appealing to the MAS and Prime Minister Lee Hsien Loong for help in the Minibond saga.

Should one of the institutions step in, investors who do not wish to hold the notes to maturity may be allowed a way out.

The MAS said that in its talks with the two institutions, it had stressed that any viable proposal 'should also provide an exit option for investors who do not wish to remain invested in the notes'.

HSBC Trustee will inform noteholders once the proposals are finalised and discussions concluded, the MAS added.

The central bank is also arranging for an independent financial adviser to be appointed to advise on the relative merits and feasibility of the proposals, and to help investors understand and assess the options available to them.

But Minibond investors should not expect a quick resolution even if these institutions agree to replace Lehman, as the process could take weeks to formalise.

'We will allow them a reasonable period of time to discuss their proposals with the other parties involved, with a view to them reaching an agreement that can be put to the noteholders,' said an HSBC Trustee spokesman.

Investors would also need to vote on whether they want the institution to be appointed to the role. Industry experts told The Straits Times that this would entail the trustee holding of an 'AGM-like' event, where investors meet to vote on approving the proposed appointment.

'The process would take a number of weeks with 21 days notice required to requisition a meeting of the noteholders and time being needed beforehand for the papers outlining the proposal to be prepared by the relevant parties,' said the spokesman.

Any interested party will also need to discuss and reach an agreement on their proposals directly with Lehman's liquidators and Minibond, which issued the notes.

Various different series of the Minibond programme were sold in Singapore to retail investors by institutions such as Maybank, ABN Amro and Hong Leong Finance. The programme was previously secured by swap obligations guaranteed by Lehman.

This article was first published in The Straits Times on October 23, 2008.