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5. I am enclosing at Appendix A a statement showing the latest permutation of Tunnel Company prospective shareholders and an estimate of the disbursement of the funds which these shareholders are expected to subscribe. It is readily apparent from this that the Company is to be undercapitalised to a far greater extent than was the case previously. The loan they are seeking from the United Kingdom and the capital they are proposing to raise in Hong Kong are in the proportions approximately of two to one.
6.
In these circumstances, and against the background of the view we currently take of longer term commitments in Hong Kong, we consider. that the line we should take in respect of any new approach is as follows. First of all we shall require that the proposed loan should be secured on the joint and several guarantees of payment of each of These guarantees must be unconditional, the intending shareholders. embracing all risks, and must attach to the assets which the various
We further propose, at least for shareholders possess outside Hong Kong.
the moment, to limit the amount of the proposed loan to £10 million. The remainder of the estimate of the cost of the contract and all subse- quent price increases must be paid in cash to the contractors as the work progresses.
7.
In our view these requirements are justified in view of the long term risk on Hong Kong. No doubt you, and other recipients of this
I am copying letter will let us have your own assessment of the risk.
to all members of the F. G. Committee since this project seems appropriate only to Section 2 of the Export. Guarantees Act, and although not formally a Financial Guarantee would differ from one in name only, as a buyer credit in respect of a loan repayable over seven years from completion or 10 years from contract.
8. I am enclosing at Appendix B a copy of a brief prepared last November for the Minister of State for Dommonwealth Affairs. This relates the earlier history of the project and represents the position which had been reached prior to the Tunnel Company's latest proposals.
9. I am copying this to Hildyard, Davies, Rome, Ryan, Thain and Ford.
(K. W. Cotterill)