3.
a
You should know in strict
confidence that it has now been agreed that E.C.G.D.
may guarantee a loan in respect of 75% of price.
In informing Clague of this decision within the
next week, Lord Brown will be making it clear that
this offer is conditional on major shareholders
giving their several guarantees of repayment of
loan in proportion to their share-holding. (You
will note that this is no longer a requirement
for joint and sovert guarantee). If E. C.G.D.
were to guarantee the loan of some £10 million
to the Tunnel Company without these guarantees,
they would be acting on the sole security of
successful operation and would be totally
unsecured during the three years of construction.
Moreover E.C.G.D. guarantee would thus be
performing the function of risk capital without
any control of the management of the project, and
would be taking on speculative risks at fixed
interest rates well below the return such risks
would justify.
4.
By contrast the to major share-
holders would be risking equity capital of less
than £6 million between them.
7.
We appreciate your reluctance to
become over-involved in investment by private
financial interests. It would however, seem
appropriate that, in line with views expressed
to Secretary of State during his recent visit,
Hong Kong Government should give a lead by under-
taking to guarantee a portion of the loan
proportionate to their own holding in the Tunnel
Company, and should impress on the major
/shareholders