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Mr Thompson had no objections to borrowing in US dollars (but made the point that dollar contracts would cause MTRC to require US indices to be applied to CPA provisions). He made it plain, however, that he would be obliged to attempt to break the consensus on maximum credit terms since his object must be to obtain terms as close as possible to the favourable periods involved in the export credit loans for the Modified Initial System.
8. Mr Kemp asked whether there were special reasons for the request that the new loan, if agreed, should be without guarantee on the part of Government of Hong Kong. Mr Thompson explained that Government guarantees involve not only approval on the part of the Legislative Council but also announcements in the Legislative Assembly. This inevitably leads to public debate in newspapers and elsewhere of the merits of the project the subject of the guarantee. concerned but counter-productive in many other ways.
This was not only tiresome for all hoped the status and repute of the Mass Transit Corporation would enable them to
Mr Thompson said that he raise loans in future on the strength of their own name alone. He also said that
the Corporation had recently obtained a loan, repayable over 7 years at 1% above base rate, without Government guarantee (Note: "The Economist" of 18th June carries the announcement of a loan to MTRC of HK Ø 600 million, managed jointly by Schroders & Chartered Ltd and Citicorp. The loan, the term and interest rate for which was not included in the announcement, is secured on the guarantee of the Government of Hong Kong).
9. Mr Kemp explained that it would be highly unusual and almost impossible for ECGD to justify lending without security in view of the existence of Hong Kong Government guarantees on the outstanding Kleinwort and many other loans. without equivalent security would render such a loan subordinate to existing loans. Lending Mir Thompson said that, in his opinion, a Government guarantee added nothing to the security of a loan made to the MTRC; the Government would never allow the Corporation to default whether or not guarantees had been given. that he fully accepted this point so far as the present Government of Hong Kong Mr Kemp said was concerned. However, the existing loan and any future loan for the Mass Transit scheme involve very long periods of forward risk and prudence dictates that repayment must be based on the soundest possible security. formal ECGD attitude necessarily is to require any future loan to be secured on At this stage, the the guarantee of the Government of Hong Kong.
Buyer Credit
10. Mr Thompson raised briefly the possibility of employing supplier credit techniques for UK contracts within the second stage of the project. for the Modified Initial System had seemed in Hong Kong to be cumbersome, complicated and time-consuming. Hr Kemp explained the essential differences between the two facilities and the sound reasons for the longer and more gruelling course to be completed in the establishment of a BCF. Mr Thompson confirmed that
he had no desire to press strongly for supplier credit and he agreed that, once established, the BCF had operated very smoothly.
would find it easier to establish a BCF the second time around.
He simply hoped that all parties
(JE Elliott) PD3 Extension 306 18 July 1977
cc: Mr Kemp
Mr Mann
Mr March (Hong Kong)
Mr Bird (CFD)
a)