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also said that although the consortium were not prepared, for fear of being held to this, to give any firm price indications themselves, he would not object if we told the Governor that the basic price from which they were working (disregarding any escalation element) was HK$ 4,500 million. This is well within the Hong Kong ceiling, and might reconcile the steering group to waiting until April before a firm price offer is made.
5. Finally Kindersley suggested that we might explain to the Governor why his own idea of an injection of equity, which the Governor found quite attractive, had been rejected by the consortium. Apparently the reason is that GEC are not willing to lock up their profits in an equity holding which they might have difficulty in selling. This is a valid commercial decision.
6.
All these points suggest that the consortium would do well to think again before they show their bid, even unofficially, to the Hong Kong Government. If they cannot improve on it they would do best to present it firmly without further ado. We could then make as strong a supporting case as we can. I believe, if they showed it privately to Mr Haddon-Cave in its present form, he would simply turn it down out of hand.
7. The final question is whether and in what form we should impress on the Hong Kong Government the political importance of validating the UK bid to put it on a par with the Japanese. My Secretary of State has written to Sir Geoffrey Howe on the general question of a "warning shot" about the implications for the UK of validating the Japanese bid which demands a guarantee. We have suggested that it would be better to hold our fire until we can use our arguments positively to support the validation of an Anglo/Italian bid. The Governor already accepts it is important to get a valid British bid in the field. But he rightly points out that for this purpose he must have on offer a bid which can be validated. We will have to discuss this further when the final form of the bid is known.
8.
I believe therefore that the sequence of events should be: (a) try to get the consortium to improve their offer.
(b)
formal presentation by the consortium to the Hong Kong Government.
(c)
support from the FCO and/or DTI emphasising the merits of the bid and the serious conse- quences for both us and Hong Kong if no British bid is even validated.
Do you agree?
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A C Stuart
Hong Kong & Indian Ocean Department
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