DRAFT
The Prime Minister saw Colonel Clague last week and asked
that he should be seen by a Board of Trade Minister. Colonel Clague
locommpanied by representatives of Containe and Freeman, Fox & Fartners
saw Mrs. Dunwoody on the 13th May.
2.
The Tunnel contract will now cost some £16 million, 25% of whi ah
will be subscribed by the shareholders of the Tunnel Company. A loan
amounting to the balance, i... £12 million is required from the U.K.
E.C.G.D. have notified Costains (to whom the Tunnel Company are
prepared to give the contract) that they are prepared to insure a loan
of £10 million subject to the joint and several guarantees of the
Tunnel Company shareholders, the risk of a Chinese takeover in Hong
Kong being underwritten for the first 5 years out of the 10 years
that the Tunnel would take to build and be paid for.
3.
The Hong Kong Government and the Hong Kong and Shanghai Bank
are not prepared to give a joint and several guarantee according to
Colonel Clague though they would be prepared to give several guarantees
related to their proportion of the Tunnel Company's capital. Colonel
Clague went on to say that if it became known in Hong Kong that H.K.G.
were not prepared to cover the political risk in Hong Kong for more
than 5 years ahead, there would be a grave loss of confidence in the
Colony which could have advɛrse financial effects both here and in
Hong Kong.
4.
There is not likely to be any difficulty in increasing the amount
of the loan to the new value of £12 million. However, the political
risk
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not one that can taken lightly and a 5 year forward horizon of risk represents the view that can be taken as a commercial proposi-
tion. It is understood however that when speaking to Colonel Clague
the Prime Minister suggested that under the provisions of Section 2
of the import Quarantees Act some more favourable terme might be
reached.
15.