38A
EXP
GUARANT
ANTEE
CREDITS
DEPARTM
Hkic 1772/1
RECEIVED IN REGISTRY KO. 51 14 OCT 1980
DESK OFFICER
2
E A Whitear Esq HM Treasuty Parliament Street LONDON SW1P 3AG
lit.
REGIST
EXPORT CREDITS GUARANTEE DEPARTMENT
Aldermanbury House
Aldermanbury
Telephone: 01-606 6699 Ext 552
London, EC2P 2EL
Telex: 883601
Semille. Luts de J8.10
I have hold M. Nelson (Tsy) in
Mr. Whitea's absence that
for Sect 2 natival
in.
7 October 1980
add
we shingly support ECED's proposal
interest cover. I we now like KOWLOON MOTOR BUS COMPANY LIMITED (KMB) HONG KONG you consider whether furten
amment by better is necessay. After years of pressure from the Hong Kens dovernment klib who operate the 80
1.
bus monopoly in Kowloon and the New Territories have embarked upon a major re-equipment and expansion programme involving heavy expenditure on new buses. and on land and buildings for garage and maintenance purposes.
2. Over 300 buses have been ordered in the last 12 months and in support of the supplier and buyer credits to finance these purchases ECGD has a current liability including interest of some £21m on the company. This amount has been assumed under Section 1 with the basis of the loan security resting on a comfort letter from the Hong Kong Government that, through a Scheme of Control, approves each year,
the company's financial plans and the level of the tariffs.
KMB
3. On the basis of the financial information made available to us and the buyer's latest published balance sheets ECGD considered that credit for a further order of 356 buses value £18m should be secured by a third party guarantee, preferably from the Hongkong & Shanghai Banking Corporation (HKSBC) who were willing to provide. their guarantee on the basis that they would take a charge on KMB's assets. have refused to pay the guarantee fee and to accept the need for a charge to be given on their assets involving as it would control of their financial arrangements by HKSBC in addition to the control already exercised by the Hong Kong Government through the operation of the Scheme of Control. KMB have now turned on the Government demanding that they support the company's credit requirement to carry out the expansion programme imposed upon them by the Government. The Hong Kong Government have protested that their comfort letter gives the lenders all the security they need as it obliges them to use their best endeavours to ensure that KMB's borrowing obligations are duly met.
HKS
4. The DOI has been maintaining pressure on the UK vehicle manufacturers to ensure that they improve on their best performance and meet KMB's delivery schedules on time. Some manufacturers in order to do so have produced chassis bodies or ordered components for their manufacture in anticipation of KMB placing firm orders with them, usually on the strength of letters of intent alone. Goods are now ready for shipment and ECGD is being pressed to support finance for the additional 356 buses on the same borrowing arrangements. KMB is suggesting that the Germans are anxious to satisfy its full bus requirements without demanding additional security and although we have no evidence to confirm this view it is possible that KMB could attract additional amounts of unsecured credit. The Hong Kong Government consider themselves very vulnerable to possible stronger demands for the removal of the "Buy from the Commonwealth" condition in the Scheme
1.
Page 60Page 61