Close fund sees up to 19 pct drop on Glitnir debt

* Fund says redemption 19 percent lower as worst case

* Recovery rate as yet unknown

* Investment matures on Feb. 24

LONDON, Oct 22 (Reuters) - A Close Brothers (CBRO.L) fund holding Glitnir Banki HF debt warned investors their returns may be 19 percent lower if the fund fails to recover any money on the securities issued by the Icelandic bank.

In a statement, the Guernsey-registered Close Enhanced Commodities Fund (CLEN.L) said the final entitlement per share will be around 214 pence in the event of zero recovery on the default, when the investment matures on Feb. 24.

"Following the Icelandic authorities' decision to place Glitnir Banki HF in receivership, the Board of the Company considers it likely that it may not pay in full on its obligation," the statement said.

"Whilst recovery rates from issuers that default vary, and in this case are currently unknown, the worst case scenario would see the company receive nothing," it said.

The fund had warned earlier this year that it could suffer losses from holding the securities, but it had yet to put a number on them.

Based on the value of the commodities portfolio on October 21, investors would receive 265 pence per share in case the Glitnir debt is fully recovered.

The fund was launched in February 23 with the issue of 33.7 million shares at 100 pence each and a subsequent issue later in the year leaves the total in circulation at 35 million.

In addition to the portfolio of six commodities, the fund holds debt securities from six issuers.

Glitnir and two other leading Icelandic commercial banks were brought down by the global financial crisis last October, forcing the country to seek billions of dollars in aid from the International Monetary Fund and other lenders.

Close Brothers and its subsidiary Close Asset Management could not be reached for comment. (For the Hedge Hub blog: blogs.reuters.com/hedgehub) (For Global Investing: here)