Mr. Aiers South West Pacific Department
Jarquing
JANUARY MEETING OF BNEC (ASIA COMMITTEE
Hong Kong Tunnel:
2.
This adds to my note of 8 October.
The ECGD requirement that the shareholders in this project (including the Hong Kong Government) should give joint as well as several guarantees for a British loan having been found unacceptable, the commercial shareholders have been in search of alternative contractor finance, and we heard on 20 December 1968 that the French Finance House (Societe Generale) had agreed to finance a loan to the company on terms which did not envisage any Government or other guarantee. We subsequently learned that the French offer was a loan of 75% of the contract price at 8% interest, repayable over ten years after contract subject to the contract going to the French firm of Dumez. These terms compared with ECGD's 57% repayable over seven years after completion of the tunnel. Meanwhile, COFACE (the French ECGD) have asked the opinion of the Board of Trade about the proposition, and in particular about security.
3. In the Colony no actual negotiations between Dumez and the company have begun, but if French finance were successfully negotiated the company would certainly proceed however genuine their expressed preference for an arrangement with Costain and the Hong Kong Government we know would still be bound by their agreement in principle to provide 25% of the tunnel equity.
4. Against this background the Governor telegraphed on 6th January to emphasise the adverse political consequences which would follow in Hong Kong if it were publicly demonstrated that a French State-owned Bank and a French Credit institute evidently had more confidence in the future, both political and economic, of Hong Kong, than had a British Government agency. As a result, Lord Shepherd wrote to Lord Brown asking that political considerations justified reconsideration of the matter, in particular ECGD's requirement of joint, as well as several, guarantees.
5. ECGD are still considering whether any of the recent developments will cause them to alter their earlier decision or not. They have been in touch with COFACE mainly in accordance with the regular practice of discussing the commercial security aspect of the project. In the course of those discussions French officials floated the tentative suggestion that joint finance might serve to reduce the commercial risk for both agencies. Mr. Montague (the Chairman of course of your Committee) is reported from Hong Kong to have learned of this and to have told a meeting of the Hong Kong Association here in London that he had learned from reliable sources that ECGD had approached the French with the joint finance proposal: in fact, it is the other way round. We know that the French have not yet
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