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security for the loan. We accepted this for what it was worth, while stressing that it was not adequate for our purposes. We have from the beginning required a 100% guarantee in addition to the lien. With the withdrawal of the commercial Tunnel Company shareholders and the new situation with which we are faced we have required a 100% guarantee from the Hong Kong Government. This is to be as 4(c) (ii) states in the form of a lien on the Hong Kong Government's funds held in London and freely available to us. It will be seen that given a guarantee of this quality we are no longer concerned with the operation of the Tunnel. It might well be indeed that our unique dependence upon this guarantee would be diluted by our willingness to accept any claim to the earnings of the Tunnel Company.
The Hong Kong Government's guarantee applies equally to political and commercial/technical causes of default. It might well be therefore that the Hong Kong Government would wish to ensure its position, vis-a- vis the Tunnel Company, by itself laying some claim to the Tunnel Company's earnings. The Treasury as a counter-guarantor of the Hong Kong Government might similarly wish to safeguard its position in a similar way.
The words in brackets at the end of the reference on page 4 to Paragraph 4 (c) (iii) of the Financial Secretary's notes might indeed reflect this point.
It will be clear from this that any comment we make must be as advisers as to what our normal requirements would be were we still operating in a purely commercial context. Clearly Cowperthwaite's comments on paragraph 4 (c) are an attempt to retain the Hong Kong Government's prior position, vis-a-vis the Tunnel Company earnings. The question of which of these, if any, might be allowed to assume priority must be one for negotiation on which the Treasury will obviously have a view in respect of the security of its proportion of the guarantee.
/4 (c)(ii) and (d)