E A Whitear Esq
of ontrol.
They point out, and are fully supported by the Department of Industry, that if such pressure proved irresistable one of the very few major export markets for Leyland and other British bus components suppliers might be lost for good.
5. Following representations from the Hong Kong Government Ken Cotterill today saw officials from the Department of Industry, the Department of Trade and the FCO and in the course of discussion agreed that there was a strong national interest case to prevent the UK's entrenched position in the Hong Kong bus market being lost or severely damaged. It was agreed that authority to support a USA or sterling buyer credit for the financing of the further 356 buses value £18m should be sought under Section 2 from EGC. Agreement is therefore requested in relation to a loan for 85% of £18m involving with interest a liability of £18.5m repayable over 5 years commencing in mid 1981. ECGD would have preferred to see this additional liability secured by a third party guarantee and covered under Section 1. In our considered opinion a £40m exposure without security on KMB is in excess of a normal prudential credit limit acceptable under Section 1 as a commercial risk. However the relatively short horizon of risk, 1981-85, the supervision of KMB's financial plans by the Hong Kong Government, and the Hong Kong Government's comfort letter, in ECGD's opinion together would constitute an acceptable Section 2 risk if others believe that the national interest case is a compelling one.
6. If this proposal for Section 2 cover is agreed ECGD must emphasise that this case would not establish any precedent, particularly as KMB are due to place further orders for substantial numbers of buses estimated at present to be 800, 400 each in 1981 and 1982. If these further orders are placed ECGD would expect to receive appropriate loan security and would make their position clear to all the parties involved.
wil
7.
KMB's latest financial plan is still being considered by the Hong Kong authorities and we shall seek full details of the plan in its final approved form before committing cover. We shall also seek a charge on KMB's assets to secure this additional loan. We appreciate in view of the buyer's strong objections to providing the bank with security that this objective will not be easily achieved but failing this we would expect the buyer to pledge himself not to charge his assets to any other lender. KMB are already aware of the difficulties of the British manufacturers who have entered into substantial commitments without firm orders and it will obviously be extremely difficult for us at this juncture to negotiate better than the Hong Kong Government's comfort letter. As already stated we shall make it clear that future orders must carry third party security unless in the meantime the company's asset base and financial future are shown to be demonstrably better than is evidenced by the present figures.
8.
In view of the urgency of the case recipients are asked to telephone their views to you so that an early decision will be possible.
C C Birch
CC
J Anderson
BOE
JE Cammell
DOI
M Blick
FCO
RD Clift
FCO
R Mathrani
DOT
Mrs M C Gingell
CRE4 DOT
G Leader
ODA
M Haworth
MCD(Sales)
2.