CONFIDENTIAL
3
12-72. as understanding
they hold proferential loan stock instead of oquity shares. Thore arcother ways in which the initial
shareholders' position can be sccured by comparison with later subscribors. (The lion on carnings nontioned in paragraph 5 will secure the same ond after completion);
(a) the Hong Kong Government nodifies its position on prior
charges on the income of the Tunnol Company. The Hong Kong Government is to receive payronts under four main hoads:-
(i) charros for land;
The lik goot is Wely, f asked by Tunnel Joy, to reduce Royalties from 12/270 607470
671⁄2 (in order to suable
the venture to becond
profitable enough, to start repayment
mi theel event. UK's heir will be on
1⁄2 of 7% milenel of 4912470.
enclude in o.. sunderstanding
(ii) royalties (for land and compensation to the
forry companios);
(iii) rates; and
(iv) profits tax.
Since the assot will be created by the loan, H.M.G. would profor a prior charge on carnings for ropayment of the loan. They are propared to accopt an equal position. In recognition of the peculiar difficultios about rates and taxos, II.M.G. are propared to allow those to have first charge, the loan to rank second for a liko amount and thon equally with the Hong Kong Government on (i) and (ii)
abovo until ono or the other is satisfiod.
(Note: If fresh priority categorics are clained by the
Hong Kong Government, we will consider thon);
(e) the Hong Kong Government undertako to ensure that financo is made available to complete the contract if costs woro to incroaso. This might bo by increase in subscribed capital borrowing or otherwise. No incrcaso boyond £10 million will be agrood in any circunstancos in the loan guarantood by .C.G.D. But H.M.G. must be assured that tho project will be completod. E.C.G.D. normally sock sono such assurance unless the borrower's assets are clearly sufficient for contingencios. The World Bank similarly sock such
assurance;
+ warning against allie
(f) the Export Credits Guarantoc Department are satisfiod as
to the contractual details (sco paragraphs 7 and 8 bolow);
(g) in the event of the guarantoo being called, the Hong Kong
Govornment will oxercise its best endeavours to recover payment from the Tunnol Company and any suns recovered shall bo shared equally botwoon the Government of Hong Kong and
H.M.G.
CONFIDENTIAL
/7. E.C.G.D.