(SINGAPORE) United Overseas Bank (UOB) is offering to redeem at full value some $150 million worth of structured investment products that it sold to retail investors in 2005.

The market value of the Prudential Yield 15 and Yield 20 funds, both of which mature in June next year, fell to less than half their starting price in March this year, but have since recovered most of the losses.

UOB said it expects to take a hit of about $10 million from the redemption offer.

'The performance of the funds has been impacted by the global financial crisis and some of our customers have expressed concerns about the impact of market volatility and economic uncertainty on their investments,' said Eddie Khoo, UOB's head of personal financial services, the bank's retail banking business.

'While we cannot do anything about market volatility and economic uncertainty, we can help to allay our customers' concerns by giving them an element of certainty,' he added.

UOB sold some $150 million of the Prudential Yield 15 and Yield 20 funds to mainly Singapore investors in April and May 2005.

Other distributors of the funds were HSBC, Maybank, Hong Leong Finance and Prudential Assurance Company Singapore.

The total fund size at inception was $267.2 million for the Singapore-dollar Yield 15 fund and US$21.1 million for the US-dollar Yield 20 fund. Prudential Asset Management Singapore manages the funds.

Each fund paid a fixed yearly coupon - 3 per cent for Yield 15, and 4.5 per cent for Yield 20. UOB is now offering to redeem all the units it sold, at their par value, less all yearly payouts to date, or at 88 cents and 82 US cents, respectively.

If an investor chooses to take up the offer and his units are redeemed at a higher price than the offer price, the investor will receive that higher price, UOB said.

Only investors who bought the funds through UOB and still held their units as at Oct 16 are eligible for the offer, which ends on Nov 6.

In July, insurer Great Eastern Holdings made a similar offer to buy back at full value $594 million worth of GreatLink Choice structured investment products that it sold to policyholders.

The net asset value (NAV) of the Yield 15 fund as at Oct 16 was 81.5 cents, compared to its low of 37.5 cents on Mar 31. The Yield 20 fund had an NAV of 84.2 US cents last Friday, compared to a low of 39.8 US cents at end-March.

The investment objective of the funds was to maintain the fixed yearly payment while offering '100 per cent capital protection' on maturity next June, five years after the funds were first set up.

But neither the coupon payments nor the return of the principal at maturity are backed by a formal guarantee.

The yearly payments - all of which have been met so far - and the principal protection depend on the performance of a reference pool of 100 'credit names' comprising corporate and government debt issuers, as well as on associated derivative transactions.

To date, 14 of the credit names have failed. BT understands that in the worst case of zero recovery from any of the underlying securities, the funds are expected to be able to withstand another nine failures before the principal is affected.

The failed names so far include US firms General Motors and Lyondell Chemical, both of which filed for bankruptcy this year.