By Gabriel Chen

UNITED Overseas Bank (UOB) has told 4,000 customers who invested in two complex products that have been belted by the global financial crisis that they can cash out and walk away with their initial principal.

The offer, which closes on Nov 6, will see investors recover their initial investment less payouts they have received to date.

The two Prudential products - Yield 15 and Yield 20 - are structured unit trust funds linked to the debt of 100 reference entities, including troubled automaker General Motors and US amusement park operator Six Flags.

UOB customers who choose to redeem their existing units in the funds will be offered a minimum of 88 cents per unit for Yield 15 and at least 82 US cents (S$1.15) per unit for Yield 20.

This takes into account the fact that investors of Yield 15 and Yield 20 have already received 12 cents and 18 US cents respectively from yearly payouts earlier.

The offer could cost the bank an estimated $10 million, depending on the market value of the funds when they are sold.

Yield 20 is denominated in US dollars while Yield 15 is in Singapore dollars.

UOB sent letters last Friday to its customers who have invested a total of about $150 million in the products.

If the bank's customers opt to redeem their existing units in the funds, which are managed by Prudential Asset Management Singapore (PAMS), they will get a sum equal to their original investment less the total payouts received.

Mr Eddie Khoo, UOB's executive vice-president for personal financial services, said the performance of the funds has swung wildly in the financial turmoil, raising concerns among some customers about the volatile market and the safety of their investment.

'While we cannot do anything about market volatility and economic uncertainty, we can help to allay our customers' concerns by going the extra mile and giving them an element of certainty,' Mr Khoo told The Straits Times.

UOB's offer is similar to one Great Eastern (GE) Life made in July. It offered to redeem GreatLink Choice products at the original purchase price after plunging values spooked about 18,000 investors.

But there is a slight difference this time: GE bought back the policies - a move that cost it an estimated $250 million - but UOB is merely facilitating the redemption process.

UOB was the main distributor of Yield 15 and Yield 20 but HSBC, Maybank, Hong Leong Finance and Prudential Assurance Singapore also sold the product.

Both funds were sold as 'capital protected' - meaning that the original amount would be returned as well as any investment gains.

The term has since been banned by the Monetary Authority of Singapore (MAS) as many investors did not understand it.

Yield 15 was launched in June 2005 with an annual payout of 3 per cent. Yield 20 was launched at the same time with an annual payout of 4.5 per cent.

The funds, which mature on June 10 next year, have seen wild swings in their prices over the past year but have recovered strongly in the recent market rally.

Yield 15, for instance, has rebounded from its lowest net asset value of 37.5 cents in March to 81.5 cents as of Oct 16.

Once customers redeem their units, UOB will submit instructions to PAMS to sell the funds and return the proceeds to the bank. UOB will pass on the cash to its customers.

If there is a shortfall between the sale price and the minimum offer, UOB will top up the difference, a move that could cost it around $10 million.

If the sale price trumps the minimum offer, customers will get the higher price.

A customer can ignore UOB's offer but that means taking the risk that his investment could end up worthless if financial circumstances take a turn for the worse.

The funds' recent history has been nerve- wracking. By July 14, 14 credit events - these include potentially ruinous occurrences like bankruptcy or the failure to pay - had occurred.

The offer applies only to investors who bought the product from UOB.

Prudential Assurance Singapore said it does not intend to offer customers a full redemption of their investment in Yield 15. It did not sell Yield 20 products.

HSBC said it is 'considering the appropriateness of a redemption offer and will advise customers in due course'.

A Maybank spokesman said: 'Customers may ...hold till maturity or redeem at any point in time. We will leave the options open for our customers.'

This article was first published in The Straits Times.