Sean & Mr Read
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X W20/0
CROSS HARBOUR TUNNEL, HONG KONG
Private interests in Hong Kong have promoted a project for connecting Hong Kong Island and Kowloon by a road tunnel under the harbour. Two large concerns (Wheelock, Marden & Co. and Hutchinson
there are three lesser and Co.) are the principal shareholders;
shareholders including the Hong Kong and Shanghai Bank; Kong Government has agreed to take up to a 25% interest.
2.
the Hong
The construction contract for this project (worth about £16 million post devaluation) will be awarded to Costain's if loan finance on terms satisfactory to the Tunnel Company can be arranged. The Export Credits Guarantee Department are prepared to cover a bank loan up to £12źm but require joint and several guarantees from the shareholders in the Company. The shareholders object strongly
to the requirement of a joint guarantee.
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E.C.G.D. argue that :-
(a)
(b)
(c)
they are required by law to observe normal commercial underwriting considerations and practice in their operations;
in a project of this nature (which in any other place than Hong Kong would be a government project backed by a Government or Central Bank guarantee) a joint guarantee is a reasonable requirement and consistent with sound commercial practice;
it is not their role to provide (nor do their rates reflect the provision of) risk capital, particularly as they do not have any influence or control over the operations of the Company.
The Tunnel Company argue that :-
(a) on the conditions E.C.G.D. seek to impose it is difficult
to see what risk they shoulder or function they perform in return for their commission;
(b) the joint guarantee is a very onerous and unusual require- ment in commercial practice: as a very considerable contingent liability in the balance sheets of each of the shareholders, it will seriously affect their credit- worthiness;
(c)
special consideration should be given to terms to be given to private interests when undertaking a project normally undertaken by governments.
this
There is a considerable British interest in obtaining this contract. Coatain would be pioneering (outside America) a new technique in tunnel-building (by the use of a steel tube); method could bd increasingly used in the future and the firm would be in a favourable position to exploit any such developments. steel involved (costing nearly half of the contract price) would be a useful boost to British steek exportsts:
The