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Miss J Kelley
HM Treasury
short period and the proceeds placed on deposit to be used for the purpose of financing imports of UK equipment and associated services. TRC would be obliged to repay the bonds on their maturity and the bondholders would receive ECGD's unconditional
guarantee of this obligation. As for the existing loans we would require the guarantee of the Hong Kong Government.
6. In detail it is envisaged the scheme would operate as follows.
The bords would be issued by TRC and initially purchased by nominated Hong Kong banks. These banks are required under the Hong Kong banking ordinance to hold a fixed proportion of their funds in specified liquid assets. Under the banking ordinance bonis qualify for liquid assets if they are: "securities with less than five years maturity issued or guaranteed by the government (of Hong Kong) or the government of the United Kinglom if -
i.
they are quoted on a Stock Exchange in London, Hong Kong or in New York
ii. they have been dealt in during the preceding six months
iii. payment of interest thereon is not in arrears".
7. Since ITRC would require credit in excess of five years it is considered essential that subscription to an issue of bonds should entail a commitment on the part of the banks originally purchasing the bonds to subscribe to either a second issue of bonds or alternatively to make a loan available at a fixed margin over prime rate. The bonds themselves would be repayable by instalments and the second bond issue on the loan at a margin over prime rate as the case may be, would relate to that part of the first issue still outstanding for payment at the end of the first five year period. The second loan, however funded, would also be repayable by instalments creating an overall repayments pattern directly akin to conventional lending.
8.
Hill Samuel advise us that the current interest rate on bond issues qualifying as liquid assets is around 6.75% and in support of this they quote the following examples: Hong Kong Building and Loan Agency 7% June 1983 currently yeilding 6.763 and ass Transit Railway 6.375% May 1933 currently yeilding 6.62%.
9.
While prevailing market conditions may alter this rate at present it seems that there will be a differential of about 1% between the going rate for such bonds and the rates of 7.75% at which Export Credits can be made available under present Consensus rules. It is envisaged that ITRC should be required to pay 7.75% and differential between this and the going rates could be employed to
10.
i. provide a commitment commission to those banks committed to put up finance for the second period
ii. incorporate within agreed interest rate part or all of the banking commissions (subject to Consensus requirements)
iii. possibly pay a fee to ECGD in return for our support of the interest rate in later years see below.
By fixing a rate at 7.75% ECGD would have no interest rate make up obligation during the first 5 years. Upon maturity of the original bond issue we have indicated that we would wish to have complete freedom to opt for a further bond issue or to call for a loan at a fixed margin over the (floating) prime rate. As with conventional Euro dollar loans it is not possible to envisage what our interest rate make up
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