-3-
9. Arising from the imprecision on price which makes accurate assessment of expenditures, borrowings and interest impossible we have had to fall back on the consultant's projections of cost, rate of expenditure, and revenue income to get some idea of the order of magnitude of pre-completion interest. On this basis the following figures emerge:
Interest accruing on principal borrowing up to completion of Stages 1 & 2 (approx 60 months) (As from the end of Stage 2 there
is a small revenue from operation
of the scheme. This is the
significance of taking this point.) HKg 235.0m (£16.8m)
Additional interest accruing up to same date by capitalisation of above (i.e. interest on unpaid interest)
HKS 17.4m (£ 1.2m)
HKS 252.4m (£18.0)
Further interest accruing on principal borrowing between end of Stages 2 and end of Stage 4 (84 months)
Additional interest accruing up to completion Stage 4 by capitalisation of above
HK$ 262.0m (£18.7m)
HK$
43.1m (£3.1m)
HKS 305.1m (£21.8m)
HK$ 557.5m (£398m)
The figure of $252.4 represents 10.5% of the anticipated principal amount of borrowing and $557.5 23.2%.
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10. The revenue which the consultants' projections indicate as being earned after completion of Stage 2 is very small (it is three times as large after completion of Stage 4). Assuming that we agree to capitalise or merely to defer the interest arising before completion of Stage 2 the projected level of revenue is inadequate, in the early years, to fund repayment, on an equal instalment basis, of the capitalised interest outstanding at "Stage 2 completion over a period less than the principal repayment period.
11. The Hong Kong Government is wedded to the idea of some concession on interest payments. To refuse to accommodate them on this issue may well, by forcing them into other borrowing, lead them to press for a reduced interest rate, and possibly even to refuse to entertain the UK proposals, however attractive they may be in other aspects. We would therefore recommend accepting the principle of what is sought and agreeing that payment of interest in principal should be deferred during the period to completion of Stage 2 when revenue commences; that interest should be charged (at the export finance rate) on payments so deferred, and that payment of the interest outstanding at the completion of Stage 2 should be repaid in instal- ments concurrently with the repayment of principal.
$12.