CONFIDENTIAL
S
2
5.
(b) an irrovocablo lion from the Cross-Harbour Tunnol
Company on the total revenue of the tunnol, in favour of the lending Bank;
(c) an irrevocablo undertaking by those two shareholders,
together with the Hong Kong Governmont, the Hong Kong and Shanghai Bank and any other major shareholder, to subscribe additional capital to the Tunnol Company in approved proportions to raise its prosont capital of £625,000 to £7 million.
In acknowledging Costains' offor the Tunnol Company reforrod to these three conditions. Thoy suggested that if the loan could be increased to 75% of the contract value "this would give your tondor an added financial advantago which could be docisivo". They stated further that a joint and several guarantoo by the two participant companios could not be provided.
6.
Consequently the Company was informed that E.C.G.D. would guarantoo a loan of 75% of the contract prico (i.e. of nearly £10 million) and that, while waiving the requironont for a joint guarantoo would still roquiro soveral guarantoos from the major shareholders of the full indebtedness of the Tunnol Company in proportion to their own holdings in rospect of the overall ten years of construction and repaymont during which E.C.G.D. would be at risk,
7. We suggested to the Hong Kong Government that, in view of their interest, they might take the load in an offort to obtain those guarantees. It was pointod cut that if E.C.G.D. were to underwrito this loan without such guarantees, they would bo acting on the sole security of successful operation end would be totally unsecured during the throo years of construction. Morcovor, B.C.G.D. quarantoo would thus bo porforming the function of risk capital without any control of tho nanagonont of the project, and would bo taking on speculativo risks at fixod interest rates well
bolow the return such risks would justify.
8. The Hong Kong Govornmont were unwilling to agroo to give a guarantoo proportionate to their sharo; and could not thoroforo sock to secure the consent of the other shareholders who wore also unwilling to put up a guarantoo.
9.
The two major commercial shareholders, whilo apparently agrooing with 3.C.G.D. in May to put up a 100% guarantee, in Juno indicated through the Governor that they were no longer willing to act as guarantors for the other cquity subscribors. In July the Tunnel Company informed the Hong Kong Government that the commercial shareholders proposed to limit their holding to a total of $61 million (i.c. 55% compared with their original 77%) and
CONFIDENTIAL
/that