(b)
The Tunnel Company then resisted and argued about the requirement of several guarantees. In June 1967 the private shareholders indicated they were not prepared to give such guarantees.
(c) Meanwhile communist confrontation had
- assumed serious proportions; the project
came to be regarded as an issue of confidence in the future of the Colony; the Hong Kong Government pressed for an early decision on the financial arrangements. At this stage ECGD took fright; they
stated this was no longer a case in which a guarantee from the shareholders would be appropriate and asked for a full guarantee (of the entire loan) from the Hong Kong Government, with other stringent conditions including a lien on Hong Kong Government assets in the U.K. We approached the Treasury for some relaxation of these requirements. They were reluctant to intervene, but agreed that, as a gesture, H.M.G. would take the exceptional step of undertaking to back the Hong Kong Government as to 50% of any call on its guarantee.
(a) The proposals for a 100%. guarantee were
unacceptable to Hong Kong (although they never formally replied to the proposition put to them). Since July the private shareholders had been seeking to reduce the equity capital and the financial arrange- ments were in the melting pot; in November sterling devaluation made an increase in the contract price inevitable. The Hong Kong Government lost interest as confrontation subsided and the project ceased to have political significance. Accordingly at the turn of the year it seened that the project had to all intents and purposes floundered and sunk. In early January I was even approached by Mr. Marden (who is Chairman of the Tunnel Company) with, it seemed, the object of devising some way of putting the project to sleep - at least for the time being. (Wheelock, Marden and Co. have, I understand, never been enthusiastic participants).
(e) However, spurred by Colonel Clague, a fresh but reduced equity shareholding was agreed; the Hong Kong Government was still prepared to participate. Renewed approaches therefore were made to ECGD for a larger loan (because of the increase in construction costs after devaluation) as if ECGD had never asked for a Hong Kong Government guarantee.
(f) Without prompting from us, ECGD succumbed
to this approach to the extent that once again they offered to cover on joint and several guarantees. Merely informing us but not consulting us in detail, ECGD offered to waive the guarantees for the first
/ five years