The announcement by the Hong Kong Association of Banks (HKAB) on Wednesday follows the emergence of legal complexities flagged by lawyers involved in US bankruptcy proceedings over the collapsed Lehman Brothers.

Singapore investors who bought Minibonds face similar legal hurdles in their battle to get at least some money back.

In October, the 18 Hong Kong banks had agreed to buy back Minibonds from investors at market value after pressure from the territory's government. They had initially planned to start the buy-back process earlier this month.

However, this was derailed after the trustee of Minibonds in Hong Kong was notified by Lehman's lawyers in the US of the possibility of legal challenges to the buy-back process.

The US investment bank's lawyers are claiming that proceeds of any sale of underlying collateral of Minibonds should be paid to Lehman first instead of investors. 'If this claim is upheld, the value of the Minibonds will significantly decrease,' said the HKAB on Wednesday.

It said the 18 banks have already spoken to legal advisers in various jurisdictions such as the US, Britain and Hong Kong, where legal challenges may be mounted by Lehman's lawyers.

'Due to the complexities of the legal issues involved and the uncertainties surrounding their outcome, the financial adviser to the distributors has advised that it is impracticable to determine the market value of the mini-bonds under the circumstances,' said the HKAB.

'The distributors have therefore decided to continue the buy-back only after these legal issues have been clarified and addressed.'

On Wednesday, Hong Kong's The Standard reported that the entire process may now take longer due to developments in Lehman's US bankruptcy hearings in the US.

The report said that a US bankruptcy court in New York had granted a motion filed by Lehman's lawyers, giving them the authority to assume and sell off derivative contracts the US investment bank had entered into before going under.

That court order specifically forbids counterparties that entered into derivative contracts with Lehman from exercising any of their default or termination rights.

This latest development has all but halted the proposed plans by the Hong Kong banks to buy-back the notes.

Read the full story in Friday's edition of The Straits Times.