Lehman minibond holders will have to decide if they would like to redeem the minibonds or wait for a "white knight" to replace the bankrupt Lehman Brothers, a government source said on Friday.

According to the Lehman's document, issures of two series of Lehman minibonds have failed to pay for the interest to investors during the 15-day grace period.

HSBC, a trustee of the Lehman's structured products, has already issued a default notice to certain Lehman minibond holders.

Having received the notice, the minibond holders will decide whether to terminate their investments in the structured products and go for early redemption.

The source said if more than 20 percent of the holders agree to terminate the investment, they may get back a certain amount of money. However, the amount is unknown as it depends on the valuation of the structured products, including collateralized debt obligations (CDOs).

The source said if the minibond holders do not wish to sell the structured products, they can wait for a rescuer to step in and replace Lehman. This may happen only after at least 75 percent of the minibond holders choose to seek a rescuer.

This "white knight" will continue to issue the same interest payment to the minibond holders, while the terms and regulations of the minibonds will also remain unchanged.

When asked how the minibond holders will cast their votes, the source said the actual voting system and steps will be released later. Yet the source hoped that the trustee can provide more information on the collaterals, so that minibond holders can acknowledge the amount of repayment.

"At the moment, there are two options," the source said, adding that it will be a business decision for a potential lifesaver to come forward.

Meanwhile, the Hong Kong Association of Banks (HKAB) has set up a taskforce to deal with issues related to Lehman minibonds and it met for the first time on Friday.

The HKAB taskforce will facilitate member banks' efforts to handle issues related to Lehman investment products by following up with Lehman's liquidators and trustees.

HKAB also said some of its member banks have increased manpower to handle complaints and inquires from investors.

The taskforce will also form subgroups to conduct analysis on each category of investment products.

(HK Edition 10/04/2008 page2)