private.sch
CONFIDENTIAL
Dratt letter to Mr Wiggham,
scs.
HMOCS: PRIVATE SECTOR PENSION SAFEGUARDING OPTIONS
Mr
Thank you for copies of the exchange of letters you have had with Mr Gray of the Hong Kong Bank. Gray's reply is helpful in showing how unattractive the option put to him is. But frankly the options have not yet been fully put to the Bank and we do not consider the Treasury will accept that the subject has been explored in sufficient a way that it may now be discarded. would therefore be grateful if you would take up Mr Gray's offer to quantify the known costs, on the following basis.
We
In our Telno 1144 we set out the advice the Treasury had received and our suggestions of what might be put to banks or insurance companies in Hong Kong to test the advice. We reiterate this in our Telno 1263. To show the Treasury that we have taken them
seriously, we shall need to produce a letter to the Bank which specifically asks about a scheme built around the purchase of receivables at a discounted rate as well as the hedge option. The letter should bring out the two points in para 5 of our Telno (the lender to bear the risk of default or HMG to bear the risk). It should also seek a written response on whether the Bank was willing to lend or take HK$ risk beyond a 10 year timeframe. (We understand that the MTRC has issued 10 year bonds in HK$).
We should therefore be grateful if you would take up the Bank's offer to do the calculations, using the data on numbers costs and timeframe put to them in your letter of 4 September but adding both for comments and financial evaluation:
- the proposal for a purchase of receivables at a discounted rate;
- the option of an exchange rate hedging option
- the option for HMG to guarantee against the risk of default;
-
the question of whether the Bank would be prepared to quote for a longer period and if so what the costs would be.