CONFIDENTIAL
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5.
If E.C,G,D, cannot socure a sufficient guarantoo, it will be unable to undorwrite the project. What is requirod is a guarantee secured on tho Hong Kong Government's assets hold in London. It is suggested that the
Hong Kong Government would have to make public its provision of such a guarantee, and it is understood that they are for this reason unwilling to give it. E.C.G.D. has now proposed that the Hong Kong Government should irrevocably instruct their bankers or agents in London to pay on presentation the Promissory Notes which the lending bankers will have bought. This would not attach a fixed sun or require any froozing of assets and should give the londing bankor the right to ask for and obtain paymont in London whon lotos natured or when interest foll duc without further specific authorisation from the Hong Kong Government. If the Tunnel Company mako othor acceptable arrangements for payments, thon this facility will only be used by B.C.G.D. in the event of default. Tho guarantoo from the Hong Kong Governmont (and H.M.G's backing to 50%) will be called on in the event of failuro to pay interest or to repay capital at tho duo datos in any circumstances whother political, technical or operational. This demonstratos in a real way H.M.G's confidence in the future of the Colony by taking on half the risk of default, including any that might result from inadoquato income to service the loan as a result of poor performance in operating the Tunnel. Additional, E.C.G.D. will require a lion on carnings.
As a condition of accopting this sharo of the risk H.M.G. would require
во
that:-
(a) the Tunnel Company's monoy be committed fully before tho
loan is drawn on. That is that the first payments duc would be not out of the subscribod capital to the maximun
extent possible and that drawings on the loan would not bogin until tho available funds were exhausted;
(b) to this ond, H.M.G. would wish the consulting engineers'
contract to be combined with the construction contrast, so
increasing the direct payments by the Company by the amount (approximatoly £1.1 million). So far as this required the uso
for other purposes of funds carnarkod for the consulting
onginoors, a like amount would be released from the bank loan (which would remain at £10 million) to pay the consultants;
(c) the shareholders waive any clain to interest during
construction and tho money so saved bo applied to construction
from the first. Thoirs is an oquity participation and H.M.G.
cannot agree to participato with the Hong Kong Government
in the risks offcctively the equity risks as joint
guarantors of a sun inflated by shareholders interest as if
/they
CONFIDENTIAL