propitious market conditions (and he stressed that the present time was unsuitable) it should be possible to raise a loan without a guarantee} in his view the market tended to see HMG as standing behind the Goverment of a Crown Colony even though no forma2 commitment exiated. Much might depend of course on the term of the lean; fifteen years might be too long. But without consultation with the Crown Agents' brokers (which, it was felt, could not be authorised) the advice given was understandably tentative and inconclusive, In the view of the F.0.0. unless positive advice is forthcoming as to the maccess of a flotation without a guarantees, the risk should and could not be taken because of the repercussions on confidence in Hong Kong.
21. But there are other problems apart from the question of guarantee. The interest rate of a loan on the London market at the present time would be % or more. The mere approval by H.M.O. of access to the London market would not be regarded in Hong Kong as sufficient recognition of HMG's own interest in the project. "Favourable terms" are sought and to meet Hong Kong it would be necessary for AMO to give some assistance towards reducing that interest rate. On a loan of (say) £63. over fifteen years at 10% interest a subvention mounting to an annual equated payment of £90,000 would be required to reduce the interest to 7%, the rate hypothecated in Hong Kong's "pwofitability forecast" for the airport (see paragraph 5 above).
In their
22. The ODM could not agree to the use of the resources of the Commonwealth Development Corporatiền for the same reasons as they were not prepared to use aid funds (paragraph 18 above). view there could be no justification for encouraging the U.D.C. to invest a large sum in this Hong Kong project at the expense of other countries in which the Corportion opcrates, whose development needs are greater. Approval for previous C.D.C. investment in Hong Kong had been exceptional and given with reluctance. In any case the C.D.C. which now paya 81 onits advances could not on-lend at less
than about 10% and the same problem of subvention of interest rate noted in parograph 21 above would arise.
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