Lehman plans Asian currency-linked notes; Merrill prices notes linked to Asian indexes

By Sheri Kasprzak

New York, June 13 - Lehman Brothers Holdings, Inc. is negotiating the terms of Asian appreciation basket with downside digital payment.

The notes are linked to the Malaysian ringgit, the Indonesian rupiah, the Singapore dollar and the Chinese renminbi.

If the basket return, which is linked to the performance of the long currencies versus the U.S. dollar, is greater than zero on the valuation date, the investors receive par plus an additional return equal to the principal amount times the product of the leverage, expected to be 110% to 125% and the basket return appreciation.

If the basket return is less than or equal to zero, the investors will receive par plus an additional amount equal to the principal amount multiplied by 3%.

The notes are principal protected if held to maturity. The notes have a 19-month term.

Currency exchange rates

The exchange rates for all of the currencies in the basket have dropped over the past month.

The ringgit/U.S. dollar rate closed at $0.2882 on Wednesday and on May 13, closed at $0.2945.

The rupiah/U.S. dollar rate ended at $0.00011 on Wednesday. A month before, the rate was $0.000114.

The Singapore dollar closed at $0.6478 on Wednesday compared to $0.6584 on May 13 and the renminbi ended at $0.1310 compared with $0.1302 on May 13.

Merrill's Asian index notes

On Wednesday, Merrill Lynch & Co., Inc. priced $18.605 million in buffered return enhanced notes linked to five Asian indexes.

The basket includes a 16.5% weighting of Amex Hong Kong 30 index, 22% weighting of FTSE/Xinhua China 25 index, 29.65% weighting of the Kopsi 200 index, 21.75% weighting of the MSCI Taiwan index and 10.1% weighting of the MSCI Singapore index.

"Those indexes will most likely improve over the term of the notes," said one market insider. "The payout seems pretty good considering the history of those indexes."

The market source noted that the fact that the indexes have improved historically, for the most part, makes the payout - double the basket return - a good deal.

If the final index level is greater than the initial level, the notes pay double the basket return with a 15% cap.

The notes are protected up to a 10% decline in the index. The investors will lose 1.1111% of their principal for ever 1% beyond 10% the index drops.

Index performance

The Amex Hong Kong 30 index ended at 1,015.83 on June 12, at 1,007.65 on May 11 and at 995.22 on April 12.

The FTSE/Xinhua China 25 index closed at 114.72 on June 12, at 115.00 on May 11 and at 110.24 on April 12.

The Kospi 200 closed a 218.59 on Wednesday.

The MSCI Taiwan index closed at 287.08 on June 12 and at 276 on May 11 and the MSCI Singapore index closed at 4,070 on June 12 and at 3,990 on May 11.

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