14/9
HWB21/5
Whitehall 1234, ext. 290
SECRET
(50)
MR. Hold 119 MR. Carter
Treasury Chambers,
Great George Street,
London, S.W.1
8th September, 1967
We had bette
discuss with für D. Trench
& MR. Cowperthwaite.
Ming dean falsworthy
ANG 11/9
Hong Kong Tunnel
59
You wrote to me on 29th August proposing that the Commonwealth Office should assume liability for half of the guarantee required by E.C.G.D. from the Hong Kong Government for the £10 million guaranteed loan for this project, as a gesture of support necessary on political grounds.
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2. May I first note that your opening paragraphs presents the case to-date in terms which I cannot recognise. A move from Section 1 to Section 2 of the E.C.G.D. Act follows solely if the independent Advisory Council decline the risks on Section 1. It occurs frequently; and it has nothing to do with the underwriting standards on the buyer, which we require to be the same for Section 2 as Advisory Council require for Section 1. E.C.G.D. do not expect to carry the risk that a project will not pay its way, and they require a guarantor who will take this risk whatever Section is involved. The Hong Kong Government guarantee was proposed not as a stricter requirement, but in substitution for the several guarantees of the shareholders when the latter declined this honour.
3. On the substance of your proposal, I am ready to agree that, as a purely political gesture in the present very exceptional circumstances of Hong Kong, you may inform the Hong Kong Government that if they will give the 100 per cent guarantee required by E.C.G.D. and will accept certain other conditions, you in turn will be prepared to undertake a public liability that H.M.G. will provide half of any sum which they are called on to pay under their guarantee, up to a maximum of £5 million plus interest attributable to that sum.
4. The further conditions are that: -
(a) The contracts for the tunnel and approach roads are
combined into an aggregate whole;
and the Tunnel
Company's equity will be fully committed before the guaranteed loan is drawn.
(b) The Hong Kong Government will accept responsibility for
ensuring that finance is available if required in excess of £171⁄2 million. As a necessary safeguard on this point, we shall require a schedule to be attached to the loan agreement phasing the drawings to conclude on completion, so that excesses will have to be financed as they arise.
Sir Arthur Galsworthy, K.C.M.G.,
Commonwealth Office,
Downing Street,
London, S.W.1.
LAST
REZ
60
NC
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