guarantee; in his view the market tended to see HMG as standing
behind the Government of a Crown Colony even though no formal
commitment existed. Much might depend of course on the term of the
loan; 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.C.O. unless positive advice is forthcoming as to the success of a flotation without a guarantee, the risk should and could not be taken because of the repercussions on confidence in Hong Kong of an unsuccessful flotation.
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 9% or more. The mere approval by HMG 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 HMG to give some assistance towards reducing that
interest rate. On a loan of (say) £6m. over fifteen years at 10% interest a subvention amounting to an annual equated payment of
£90,000 would be required to reduce the interest to 7%, the rate hypothecated in Hong Kong's "profitability forecast" for the airport (see paragraph 5 above).
22. The ODM could not agree to the use of the resources of the Commonwealth Development Corporation for the same reasons as they were not prepared to use aid funds (paragraph 18 above). In their
view there could be no justification for encouraging the C.D.C. to invest a large sum in this Hong Kong project at the expense of other
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