CONFIDENTIAL
5. This basic Government contribution is made up as follows:
(a) Equity injection for Airport Authority (AA):
HK $ 13.6 billion
HK $ 3.0 billion
(b)
Equity injection for MTRC:
(c)
Government capital expenditure:
HK $ 42.7 billion.
GOVERNMENT SUPPORT FOR AA/MTRC BORROWING
6.
The AA will be set up, on the foundation of the present Provisional Airport Authority (PAA), and on the model of the MTRC, as a corporation wholly owned by the HKG/SARG. The AA and MTRC will finance the bulk of the projects for which they are responsible by borrowing from the private sector. In order to attract the necessary investment (up to HK $ 36 bn for the MTRC and HK $ 37 bn for the
AA at money of the day prices), they need, among other things, either:
(a) to have Government guarantees for their borrowing:
(b) to be able to demonstrate that they have an adequate equity basis (eg as expressed in terms of maintaining a specific ceiling for the debt/equity ratio).
7.
or
HKG and their financial advisers concluded that providing guarantees of AA and MTRC debt (point (a) above) was a less cost-effective way of supporting the corporations' borrowing than undertaking to pay in extra equity in future if this proves necessary to support the debt/equity ratio (point (b) above) because adverse circumstances make extra borrowing necessary: the amount of such callable equity has been fixed in the draft agreements as:
-MTRC:
HK $ 12.5 billion (money of the day)
-AA : HK $ 8.5 billion (money of the day).
(The March 1991 equivalent of these figures depends on when the equity is actually called which cannot be predicted with any certainty).
Some of this additional equity might be called before 1 July 1997; some might be called thereafter, ie it constitutes a contingent liability straddling 1997.
OTHER GOVERNMENT SUPPORT
8. Under the draft agreements, HKG will also support the two corporations in other ways, which involve at least a