2918
OP PRIV
NCIL POR
From the
Minister of State
TRADE
MINISTER OF STATE
Recal 2018
To
Dear Malcolm,
Ack
Ronan 298
Mr. Carter
24
thi
Sir Auftrum
Bolawatty
BOARD OF TRADE
1 VICTORIA STREET
LONDON S.W.1
ABBEY 7877
27 August, 1968.
133
Thank you for your letter of 31st July about the Hong Kong tunnel project.
If a separation of the political and commercial risks could effectively be made, the purely commercial risks could, in this case, be sufficiently safeguarded for E.C.G.D.'s purposes provided that the whole amount of the credit was severally guaranteed with the backing of their assets in and outside of Hong Kong by the proposed shareholders of the Tunnel Company in proportion to their proposed shareholdings. (The assets in Hong Kong of the private shareholders are not sufficient.) Col. Clague was not justified in suggesting that there is something unusual about requiring a "joint" (as well as "several") guarantee from the equity interests. Why should anyone else take any risk that one or other of the investors might not be good for the money he has promised?
Col. Clague recently suggested that the guarantees might be furnished in the form of shares not paid-up. We shall explore this idea with him. But, in whatever form they give guarantees, the shareholders will want protection against total loss arising from a takeover by China.
E.C.G.D. consider it their function to cover U.K. exporters against such risks but in the present case it is, in effect, not the exporters but the investors who are seeking the cover i.e. by not putting up the money which will be at risk. E.C.G.D. could go along with this, if it were agreeable to the Treasury, but they would require a Hong Kong Government guarantee. For E.C.G.D. have a duty to safeguard their funds by any means available, since their funds provide the backing for all their assistance to exports. They would not be behaving responsibly if they did not establish a claim against the external assets of Hong Kong so that if the worst happened they would have immediate rights ranking ahead of the body of claimants for general compensation. That is why the guarantee of the Government of Hong Kong has seemed so necessary in order to get this project off the ground. In other countries a scheme like this would need, and would receive, a Government guarantee.
The Rt. Hon. The Lord Shepherd, Commonwealth Office,
London, S.W.1.
LAST REF.
124
REXT
REF.
/As you
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