CONFIDENTIAL
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5.
If E.C,G,D, cannot scoure a sufficient guarantoo, it will be unablo to underwrite the project. What is required is a guarantee secured on tho
Hong Kong Govermont's assets hold in London. It is suggested that tho
any
Hong Kong Government would have to make public its provision of such a guarantee, and it is understood that they are for this reason unwilling to give it. E.C.G.D. has now proposed that the llong Kong Governmont should irrevocably instruct their bankers or agents in London to pay on prosontation the Promissory
Bought by
which remam unpaid 14 days after due date Notos hich the londing bankers) will have bought) This would not attach a fixed sun or require any froozing of assets and should give the lending bankor the right to ask for and obtain payment in London whon Motos naturod or when interest foll due without further specific authorisation from the Hong Kong .Government. If the Tunnel Company nako other accoptable arrangements for paymonts, thon this facility will only be used by E.C.G.D. in the ovent of default. The guarantoo from the Hong Kong Government (and H.M.G's backing to 50%) will bo called on in the event of failure to pay interest or to repay capital at the duo datos in any circumstancos who thor political, technical or operational. This demonstratos in a roal way H.M.G's confidence in the future of the Colony by taking on half the risk of default, including any that might rosult from inadequate income to service the loan as a result of poor performance in operating the Tunnel. Additional, E.C.G.D. will require a lion on carnings.
6. As a condition of accepting this share of the risk 1.M.G. would roquiro
that:-
undesland
Understanding
(a) the Tunnel Company's monoy be committed fully before the
loan is drawn on. That is that the first payments duc
would be not out of the subscribed capital to the maximum
cxtent possible and that drawings on the loan would not begin until the available funds were exhausted;
(b) to this end, H.M.G. would wish the consulting engineers'
contract to be combined with the construction contrast, so
increasing the direct payments by the Company by the amount (approximately £1.1 million). So far as this roquirod tho uso
for other purposes of funds carmarked for the consulting
onginoors, a liko amount would be rolcased from the bank loan (which would romain at £10 million) to pay the consultants;
(c) the shareholders waive any clain to interest during
construction and the money so saved be applied to construction from the first. Thoirs is an equity participation and H.M.G.
cannot agree to participato with the Hong Kong Government
in the risks effectively the oquity risks - as joint
guarantors of a sun inflated by shareholders interest as if
* le net of essential operating expenses.
CONFIDENTIAL
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