CONFIDENTIAL
2.
5.
(b) an irrovocablo lion from the Cross-Harbour Tunnol
Company on the total revenue of the tunnel, in favour of the londing Bank;
(c) an irrevocable undertaking by those two shareholders,
together with the Hong Kong Government, the Hong Kong and Shanghai Bank and any other major shareholder, to subscribo additional capital to the Tunnel Company in approved proportions to raise its prosent capital of £625,000 to £7 million.
In acknowledging Costains' offor the Tunnel Company referred to these three conditions. Thoy suggostod that if the loan could be increased to 75% of the contract valuo "this would give your tender an added financial advantage which could be decisivo". Thoy stated further that a joint and sovoral guarantoc by the two participant companios could not be provided, 6. Consequently the Company was informed that E.C.G.D. would guarantoo a loan of 75% of the contract price (i.c. of nearly £10 million) and that, while waiving the requiroment for a joint guarantoo would still roquiro several guarantocs from the major shareholders of the full indebtedness of the Tunnol Company in proportion to their own holdings in rospect of the overall ton years of construction and repayment during which B.C.G.D. would be at risk.
7. We suggested to the Hong Kong Governmont that, in view of thoir intcrost, they might tako the load in an effort to obtain those guarantees. It was pointed cut that if E.C.G.D. word to underwrite this loan without such guarantoos, they would be acting on the scle security of successful oporation and would bo totally unsecured during the thrco years of construction. Morcovor, E.C.G.D. guarantoo would thus be performing tho function of risk capital without any control of the management of the project, and would bo taking on speculative risks at fixed interest rates woll below the return such risks would justify.
8. Tho Hong Kong Government were unwilling to agroo to give a guarantee proportionato to their sharo; and could not thoroforo sock to secure tho consent of the other sharoholders who wore also unwilling to put up a guarantoo. 9. The two major commercial shareholders, while apparently agreeing with 3.C.G.D. in May to put up a 100% guarantee, in Juno indicated through the Governor that they were no longer willing to act as guarantors for the other oquity subscribers. In July tho Tunnel Company informed the Hong Kong Government that the commercial shareholders proposed to limit their holding to a total of $61 million (i.c. 55% compared with their original 77%) and
/that
CONFIDENTIAL