HOFO@08/19
7.00 FCO
GPS 450
CYPHER/CAT A
FM HONG KONG 198430Z
CONFIDENTIAL
TO IMMEDIATE FCO TELMO 1201 OF 19 OCTOBER.
DAR
20
PLA
HD HHIOD
PERSONAL FOR MR ROYLE FROM GOVERNOR.
1425
ther
YOUR TELEGRAM 1045.
(253
MASS TRANSIT RAILWAY.
-IN M..P.T. Í HAD ALREADY SENT YOU COPIES OF THE LETTERS
ISSUED BY HADDON-CAVE YESTERDAY TO THE JAPANESE CONSORTIUM AND THE
OTHER THREE CONSORTIA. THESE WILL BRING YOU RIGHT UP TO DATE ON THE PRESENT POSITION.
2. AS REGARDS THE TWO POINTS IN YOUR PARA 51
(1) THE JAPANESE PRE-EMPTIVE BID IS IN A MAXIMUM SUM OF YEN 255,680 MILLION WHICH CONVERTS AT THE MERCHANT SELLING RATE ON 1 OCTOBER (THE DATE ON WHICH THE BID WAS ACKNOWLEDGED) TO HONG KONG DOLLARS 4,998.3 MILLION. IT IS, THEREFORE, JUST WITHIN THE LIMIT SET ON THE CEILING PRICE BY THE STEERING GROUP:
(2) THE WAY IN WHICH THE STEERING GROUP HAS RESOLVED THE DILEMMA THEY FACED OVER THE JAPANESE CONSORTIUM'S REQUIREMENT FOR A GUARANTEE,
WHILE NOT SHUTTING THE DOOR ON WHAT IS OTHERWISE AN ATTRACTIVE
BID, IS EXPLAINED IN THE LETTERS IN M.1.P.T. THE JAPANESE
CONSORTIUM'S REQUIREMENT STEMS FROM THEIR EXIM BANKS'S INSISTENCE
THAT A LINE OF CREDIT WOULD ONLY BE MADE AVAILABLE TO THEM IF A
GUARANTEE WAS FORTHCOMING FROM THE HONG KONG GOVERNMENT TO
THE CONSORTIUM BECAUSE THE GOVERNMENT IS THE MAJOR (AND INDEED THE ONLY) EQUITY SHAREHOLDER. THE EXIM BANK'S ATTITUDE IS
INFLUENCED BY THE FACT THAT THE CAPITAL STRUCTURE OF THE MASS
TRANSIT RAILWAY CORPORATION WILL HAVE A HIGH LOAN BEARING, WHETHER
OR NOT EXECUTIVE COUNCIL WOULD ACTUALLY AUTHORISE ACCEPTANCE
REPEAT ACCEPTANCE OF A BID WHICH REQUIRED A GUARANTEE FOR EXPORT
<
CREDIT TYPE FINANCE, I CANNOT SAY. BUT THE STEERING GROUP DID NOT
THINK THAT VALIDATION REPEAT VALIDATION OF THE BID SHOULD BE WITHHELD BECAUSE OF THE GUARANTEE REQUIREMENT (THOUGH
THEY REMAIN CONCERNED AT THE POSSIBLE DIFFICULTY LATER ON OF RAISING
THE FARE STRUCTURE TO MEET DEEBT REPAYMENTS IF THE GOVERNMENT IS
CONTRACTUALLY COMMITTED TO MEETING THESE OBLIGATIONS ANYWAY).
3. I THINK YOUR REFERENCE TO H.M.G. BECOMING QUOTE INVOLVED
IN THE LAST RESORT UNQUOTE MUST BE BASED ON A MISUNDERSTANDING.
NO COUNTER-GUARANTEE IS REQUIRED BY THE CONSORTIUM FROM H.M.G.
THERE IS NO PARALLEL HERE TO THE REQUIREMENT OF THE A.D.B. FOR A GUARANTEE BY H.M.G. TO THE RECENT ADB/HK LOAN. MOREOVER THE TERMS
OF THE GUARANTEE, LIKE THE REST OF THE CONTRACT, REMAIN TO BE NEGOTIATED, BUT WE WILL ENSURE THAT THE WORDING MAKES IT CLEAR THAT IT RELATES TO THE HONG KONG GOVERNMENT ONLY. INCIDENTALLY,
A LIEN ON SPECIFIC ASSETS IS NOT SOUGHT BUT ONLY A GENERAL
UNDERTAKING, THE IMPLEMENTION OF WHICH WOULD ITSELF BE NEGOTIABLE,
4. SINCE THE STEERING GROUP DID NOT CONSIDER THAT THE REQUIREMENT
OF A GUARANTEE SHOULD BE ALLOWED TO INVALIDATE A BID WHICH WAS IN OTHER RESPECTS SO SATISFACTORY, I THINK THAT THE EXPEDIENT OF USING THIS TO GIVE THE COMPETITOR CONSORTIA AN EXTRA FORTNIGHT
WAS INGENIOUS AND I HOPE HELPFUL.
MACLEHOSE
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SENT AT 19/0612Z RD