CONFIDENTIAL
刂
M
-Entu
Hapana (rec'd to
하
6.6.
L30
30
2F(RMSA)120/91/01·
cc Mr Jones
88
MRS HEDLEY MILLER
HONG KONG : IMPLEMENTATION OF
6 MONTH GUARANTEE
This note discusses two problems that have arisen on the implementation of the 6-month guarantee. The purpose of this note is to invite higher authority to agree to the solutions proposed in paragraphs 11 and 14.
2 You will recall that in the light of Hong Kong's breach of the MSP/MSH requirement at the end of February (the third breach in a 5-month period) we devised a modified basis of settlement for Hong Kong. This effectively specified that compensation would be payable on a sum equal to the amount of eligible balances at the end of February plus the interest accruals and further "topping-up" purchases necessary to correct the shortfall at the end of February.
3 We thought at the time that this modified settlement basis might save some £300,000 and, in the event, it has saved as a minimum £354,000 by comparison with the settlement that would have been due had we condoned the end-February breach and settled on the standard basis. This "saving" is firm - none of the following discussion detracts
from it in any way.
4 There are two outstanding issues: depending on how they are resolved, the modified settlement basis might save a further £120,000 ie a total of £474,000. Both issues relate to interpretation of the modified settlement basis and highlight the very great difficulty in the way of modifying this complicated guarantee arrangement in a way that is unequivocal and crystal clear.
Definition of Eligible Balances
E
5 The logic of the modified settlement basis is that it accorded with what we had discovered to be the Hong Kong interpretation, albeit mistaken, of the accidental breach provision namely that breaches at
ww