UKFI plans bond for RBS, Lloyds stakes - report

LONDON, June 11 (Reuters) - The company managing Britain's stakes in Royal Bank of Scotland (RBS.L) and Lloyds Banking Group (LLOY.L) could sell an "exchangeable bond" in the two banks, according to the Daily Telegraph.

The plan would effectively allow UK Financial Investments (UKFI) to sell RBS and Lloyds stock at a premium to the prevailing share price, potentially profiting on the investments before the shares recover to the government's entry level, the newspaper said on Thursday.

Buyers of the exchangeable bond would earn a small amount of interest and keep any upside in the stock.

The scheme is thought to be the most advanced of a number of options on the table, the paper said, adding that unnamed sources believe UKFI could raise 5 billion pounds ($8.20 billion) or more through issuing the bonds.

However, a deal was unlikely before the end of the year, it added.

UKFI could not immediately be reached for comment.

Last week, Lloyds said it would repay about 2.56 billion pounds to the government, setting the ball rolling on global banks beginning to pay back the emergency bailouts made during the credit crisis [ID:nL8410713].

(Reporting by Rosalba O'Brien; Editing by Bernard Orr)