ть
Treasury Chambers
Parliament Street London SW1P 3AG
AKK 173/
RE
Telephone Direct Line 01-23
Switchboard 01‐233 3000 DESK OFFICER
INDEX
PA
You
You re ogende
Telex 262405
CC Birch Esq
Export Credits Guarantee Department
Aldermanbury House
Aldermanbury
LONDON
EC2P 2EL
HONG KONG MASS TRANSIT RAILWAY CORPORATION
PORAT
Our reference
Date
1978
NO. 51
REGISTRY
Action Lakes
X
(0 February 1978,
No Thompson to
871372
You wrote to Joan Kelley on 6 February and we spoke by telephone on 8 and 9 February about the nature of the support you should öffer to Met Cam in a contract worth £25 million for 70 rail cars in accordance with the option to the original contract which HKMTRC may or may not now exercise.
The basic terms for a new contract would be 85% financing repayable over 82 years at an interest rate of 72%. I understand that there will be no support for local costs nor capitalisation of interest this time. Met Cam will in any event tender in US dollars and will be supported by tender to contract cover and cost escalation cover. The immediate issue is whether we should agree to the request or requirement that ECGD should support financing in Hong Kong dollars. You have told me that the pressure is coming directly from the Chairman of HKMTRC and not indirectly through Lazards and that the alternative being mentioned is that the whole future requirement for 210 rail cars (including the 70 under the option) would be put out to international tender. Moreover you told me that Marche in Hong Kong had confirmed that HKMTRC were seeking this type of financing.
We spoke briefly about the recent correspondence between our Departments and the Bank of England about the use of local currencies in buyer credits. The conclusion of that correspondence seems to be that none of us has any enthusiasm but that we are willing to look at cases on merits and the first point is whether the use of local currency is likely to be important in winning the business. I confirm having come to the conclusion that the risk is a real one, even though Met Cam appear to be in a favoured position at present. The efforts made to win business in Phase I of the Mass Transit seem to imply that we could gain some special benefit from Phase II and should not put the new business at risk. While this new business cannot be regarded as equal in importance to that for the power plant industry, the scale of the risk in using local currency in this case is, as you say, only one eighth of that which we were willing to contemplate for China Light and Power. That being so, we have concluded that the risks involved in an interest rate based on Best Lending Rate over a period up to 11 years ahead are acceptable. On balance, we prefer that to an alternative concession of sterling financing, which might seem to be implied in the terms of an option following an original contract in sterling.
We understand that it may not be particularly easy for you to obtain the security of a Hong Kong Government guarantee but we regard this as a condition of our agreement to
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