Cha
AN END LON
NICIC
RECEIVED IN REGISTRY NO. 51
DESK
INDEX
14 OCT 1980
REGISTRY Action Taken
Awith PA
29A
ISA
GPS SC..
(1912
ENCLAIR
FROM ECGD HQ LONDON 12073LZ SEP
UNCLASSIFIED
TO TANECIATE ATRADE HONG KONG EXCED (1912
FOR DEREK MARCH FROM BIRCH, KOWLOON HO TOR BUS CO-PANY.
1. EOSD HAS FOR MANY YEARS SUPPORTED A STEACY FLOW OF EXPORTS OF BUSES AND COMPONENTS TO WME UNCER MEDIUM AND SHORT TERM SUPPLIER CREDIT GUARANTEES WITHOUT REWIRING COLLATERAL OF A FINANCIAL KIND ALTHOUGH MORE RECENT SUPPORT HAS BEEN BACKED BY LETTEROF COMFORT FROM HONGKONG GOVERNMENT. WE HAVE HAD TO REASSESS SECURITY NEEDS IN VIEW OF RAPID ACCELERATION OF THE DEPARTMENT'S LIABILITIES ON KME WHERE BUYER CREDIT FINANCE IS NOW BEING GIVEN. CURRENT COMMITMENTS APPROACH POUNDS 20 # OF WHICH POUNDS 1M PELATES TO EXISTING BUYER CREDITS, ONE FOR 2CC EUSES ARRANGED THROUGH STANDARD CHARTERED IN DECEMBER 1979 AND AND THER IN AUGUST 1980 THROUGH ANTONY GIEBS FOR 100 BUSES. WE ARE NOW, CONSIDERING A FURTHER BUYER CREDIT TO BE PLACED THROUGH ANTONY GIESS FOR 206 BUSES WHICH WOULD ADD POUNDS 22M TO CUR LIABILITIES AND WE EXPECT FURTHER APPROACHES OVER THE NEXT 2 TO 3 YEARS TO FINANCE AME REEQUIPMENT PURCHASES OF A FURTHER 1700 BUSES. WE ESTIMATE THAT THE FULL PROGRAMME WOULD CREATE A TOTAL LIABILITY OF UP TO POUNDS 120M DEPENDING ON THE PRECISE VOLUME AND TIMING OF CADERS AND CALL FOR ANNUAL REPAYMENTS EY KME CF SOME POUNDS 30 IN PEAK YEARS.
2.
WE CONTINUE TO REGARD KMS TO BE FINANCIALLY SOUND BUT CONSIDER THE SIZE OF CURRENT AND PROSPECTIVE COMMITMENTS TO SE OUT OF SCALE WITH BALANCE SHEET STRENGTH. ALTHOUGH THE SCHEME OF CONTROL AND THE HONGKONG GOVERNMENT COMFORT LETTER REPAIN
A MOST VALUABLE FEATURE IN OUR ASSESSMENT OF SECURITY REQUIREMENTS WE FEEL THAT THE FIGURES HAVE REACHED A LEVEL NECESSITATING MORE DIRECT SECURITY BEYOND THE HONGKONG GOVERNMENT'S BEST ENDEAVOURS TO SEE THAT AME WILL MEET ITS COMH MENTS. REPAYMENT GUARANTEES WOULD IDEALLY TAKE THE FORM OF A PAYMENTS GUARANTEE FROM (A) AN ACCEPTABLE COMMERCIAL BANA OF (8) FROM THE HONGKONG GOVERNMENT. WE HAVE DISCUSSED (A) WITH ANTONY GIESS IN THEIR CAPACITY AS MANAGING BANK IN THE LCE ELS CASE AND THEY TOLD US THAT THE HONGKONG SHANGHAI BANA WOULD PROVIDE A GUARANTEE AND INDICATED THERE WOULD BE LITTLE DIFFICULTY IN ARRANGING IT. WE ASSUME THAT (E) WOULD NOT SE AVAILABLE.
3.
BRITISH LEYLAND REPRESENTATIVES R R MORRIS AND PETER RATMEONE SAW US ON THE 10TH SEPTEMBER TO REPORT THAT KHE HAD STRONGLY CBJECTED TP PROVIDING THE HONGKONG SHANGHAT GUARANTEE. EXPRESSED WILLINGNESS TO LOOK AT KHE'S CASH FLOW PROJECTIONS AND ANY RELEVANT SUPPLEMENTARY INFORMATION SUCH AS THE EFFECT ON THEIR REVENUES THIS YEAR FOLLOWING THE RECENT FARE INCREASES. BRITISH LEYLAND ARE ARRANGING FOR THIS TO BE DELIVERED HERE AEXT WEEK VE D NOT EXPECT THAT THIS INFORMATION WILL PROVIDE
SUFFICIENT SA NES FOR ODIFYING GOR,DEO SION BUT SALMISA LEYLAND RALE & GUESTED THAT A COMPROMISE MIGHT BE AGR500 unla
SAY THEM AND WE ORIA FRITION Curreland 10 ACCEPT JAVEDIATELY AN ORDER FOR 100 BUSES TO BE FINANCED WITHOUT THE ADDITIONAL SECURITY WE ARE NOW SEEKING. WE HAVE OFFERED TO CONSIDER THIS WHEN THE FURTHER FINANCIAL INFORMATION IS. AVAILABLE ON THE SASIS THAT THE SALANCE OF CO BUSES MOULD BE SUBJECT TO LATER ORDERS TO BE CONCLUDED ESFORE 21ST CECEMBER AND TO BE FINANCED BY A FURTHER LOAN WHICH WOULD BE GUARANTE80 BY AN ACCEPTABLE THIRD PARTY BUT WE HAVE UNDERTAKEN TO HOLD THE CURRENT PREFERENTIAL SATE OF 7 1/4 PERCENT FOR THE SECOND LOAN PROVIDED ALL DELIVERIES IN RELATION TO THAT LOAN ARE CONCLUDED SY 1ST AUGUST 1931. WE CANNOT PREJUDGE OUR ASSESSMENT OF THE ADDITIONAL FINANCIAL INFORMATION TO SE SUPPLIED BUT WE HAVE LITTLE REASON TO BELIEVE THAT IT WOULD PROVIDE GROUNDS FOR CHANGING OUR VIEW OF THE SECURITY FOR A LOAN IN RESPECT OF THE TOTAL LES EUS ORDER,
WE WISH TO SEE THIS CONTINUING BUSINESS ESTABLISHED ON A
SOUND FINANCIAL EASTS 90 THAT A SLIPLE RENEWABLE ANNUAL FACILITY CAN SE SET UP WITH STRAIGHTFORWARD PORCEDURES. WE WOULD EXPECT TO MAKE THESE ARRANGEMENTS FOR ANY FUTURE LOANS AFTER THIS NEXT INITIAL ORDER IS PROVICED FOR.
SINCE OUR MEETING WITH ERITISH LEYLAND WE HAVE BEEN ADVISED BY ANTONY GIBES THAT KHE HAVE ASKED FOR DIRECT CONFIRMATION OF OUR REQUIREMENTS SEFORE THEY MAKE ANY FIRM DECISION. WE DO NOT CONSIDER IT APPROPRIATE FOR US TO COMMUNICATE DIRECTLY WITH KME IN THE PRESENT CIRCUMSTANCES AND WOULD BE OBLIGED IF YOU WOULD CONFIRM OUR POSITION TO KMS AND AT THE SAME TIME LET THE HONGKONG GOVERNMENT OFFICIALS CONCERNED KNOW OF THE PROELEM AND CUR ATTITUDE. WE WOULD BE INTERESTED TO HEAR THE MONGKONG GOVERNMENT'S REACTION. PLEASE STRESS THAT $300'S SECURITY REQUIREMENTS STEM ENTIRELY FROM THE BUILD-UP OF COMAL TXENTS TO THEIR NOW VERY SUBSTANTIAL LEVEL AND IT IN NO WAY REFLECTS ON OUR CONFIDENCE IN KE'S FUTURE PERFORMANCE NOR ON THE HONGKONG GOVERNMENT'S ASSURANCES OF THEIR BEST ENDEAVOURS IN RELATION TO KME'S FINANCIAL COMMITMENTS.
THEY
€. WE ARE ASKING ANTONY GISES TO LET KHE KNOW THAT WE ARE CONSULTING YOU AND THAT YOU WILL BE IN TOUCH WITH THEM. WILL NO DOUBT ALSO GET THE SAME MESSAGE FROM BRITISH
REGARDS BIRCH
EXPORTORED
NNAN
LEYLAND.
DESPATGEND
12 SEP 20
ECOU COMING
SENT
12/0935
919307 PRORME G