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Mr. Liang, and draw up a Memorandum of all the details necessary for the Agreement, which could then be discussed and modified where necessary.
He then referred to the question of commutation of profits and of commission on materials. I proposed the basis suggested for the Tien-tsin-Yang-tsze Railway, and discussed with Mr. Liang that morning, namely, 6 per cent. for commuted profits, and 2 per cent, for commuted commission on materials, say, 8 per cent. on 1,500,000/. - 127,5001. Wang Ta-jên went into figures, and apparently treated the commutation as coming off an estimated price of 94 for the loan, resulting in a net price of about 86. He remarked that the amount proposed as commutation seemed rather high, but he would consider it. I was to introduce clear statements of this and all other necessary details into my draft Memorandum, also the proposed wording of the clause with respect to the Chief Engineer. The Memorandum could be sent to him in English, and he would get it translated at the Wai-wu Pu. After it had been considered, he would fix a day for its discussion.
Inclosure 2 in No. 1.
MEMORANDUM of terms proposed for an Agreement between the Wai-wn Pu, representing the Imperial Chinese Government, and the British and Chinese Corporation (Limited), for the issue of a loan of 1,500,0001. for the construction of a railway connecting the cities of Soochow, Hangchow, and Ningpo.
THE Imperial Chinese Government will authorize the Corporation to issue, through the Hong Kong and Shanghae Banking Corporation, London, a sterling loan of 1,500,000%. The loan to be entitled The Imperial Chinese Government 5 per Cent. Sterling Loan of 1907 for the Soochow-Hangcbow-Ningpo Railway."
2. Interest on the loan will be at the rate of 5 per cent. per annum, and will be paid to the bondholders half-yearly.
3. The term of the loan will be thirty years, and repayment of principal will be made by annual sinking fund, commencing with the eleventh year. The ordinary redemption may be increased at any time after the expiration of the tenth year until the twentieth year, by payment of a premium of 23 per cent, on the face value of the bonds, that is to say, by payment of 1021. 10s. for each 1001. bond, and after the twentieth year without premium; but the Imperial Chinese Government will give six months' notice to the bank of any such extra redemption, and it shall be effected by extra drawings of bonds to take place on the date of an ordinary drawing, as provided for in the prospectus of the loan.
4. The total annual service of principal and interest of the loan, amounting during the first ten years to 75,000l. per annum, and after the tenth year to 120,3631. 18s. per annum, will, during the construction of the railway, be paid by the Imperial Chinese Government from its own funds, and after construction is completed from the earnings of the railway, any deficiency being made up by the Chinese Imperial Government from other sources.
Payment of loan service will be made in instalments every three months by the Railway Administration to the Hong Kong and Shanghae Bank, Shanghae, in accordance with the schedule of payments to be attached to the Agreement, and fourteen days in advance of the due dates thereof. Funds in Shanghae sycee sufficient to meet each such payment in sterling in London, including a commission of per cent. to the Hong Kong and Shanghae Bank as agents for the loan, will be handed to the Hong Kong and Shanghae Bank in Shangbae, exchange for which will be settled by the Railway Administration with the bank; but the Railway Administration may settle exchange with the Hong Kong and Shanghae Bank for an instalment at any time within six months previous to its due date.
The Corporation will have the right to rearrange the service of interest, and of repayments of principal to the bondholders on such terms as it seems advisable.
5. The Corporation will issue to subscribers to the loan bonds for the total amount of the loan in pounds sterling in such form and for such amounts as may appear advisable, and these bonds will be sealed by the Minister for China in London as evidence that the Imperial Chinese Government is bound thereby.
In the event of bonds issued for the loan being lost, stolen, or destroyed, the Corporation will immediately notify the Chinese Minister in London, who will authorize them to insert an advertisement in the public newspapers notifying that payment of the same has been stopped, and to take such other steps as are required by British law.
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Should such bonds not be recovered after the lapse of time provided by the law, the Chinese Minister in London will, without further authority from the Chinese Govern- Oment, seal and execute duplicate bonds for a like amount and hand them to the
Corporation, by whom all expenses in connection therewith will be defrayed.
6. The Imperial Government of China unconditionally guarantees and declares itself responsible for the due payment to the bondholders of the principal and interest of the loan, which is to be further secured by
revenues, estimated to be 1,300,000 Kuping taels a-year. In the event of interest or principal of the loan being in default at due date, the Corporation will be allowed to appoint an official receiver to administer and receive the said revenues on behalf of the bondholders.
7. All bonds and coupons and payments made and received in connection with the service of the loan will be exempt from Chinese taxes and imposts for ever.
8. All details necessary for the prospectus and connected with the services of the bondholders of the interest and principal of the loan not explicitly provided for in the Loan Agreement will be left to the arrangement of the Corporation, who will issue a prospectus of the loan as soon as possible after the Agreement is signed. The Wai-wu Pu will instruct the Chinese Minister in London to co-operate with the Corporation in any matters requiring conjoint action, and the Chinese Minister in London will approve the prospectus of the loan.
9. The proceeds of the loan are to be applied by the Imperial Chinese Govern- ment exclusively to the construction and equipment of a railway line from Soochow to Hangehow, and thence to Ningpo, connecting with the Shanghae-Nauking Railway at Soochow. Construction will commence within eight months of the signing of the Agree- ment, and will be completed within three years of its commencement; but in the event of unforeseen conditions arising rendering it impossible for the Imperial Chinese Govern- ment to complete the line within the period stipulated a reasonable extension of the time may be arranged.
The construction and management of the railway are to be exclusively nuder the control of the Imperial Chinese Government, a Chinese Managing Director being appointed who will deal with the Corporation in all necessary matters.
The cost of the land necessary for the railway and the payment of interest on the loan during construction are not estimated for in the amount fixed for the loan, and are to be met by the Imperial Chinese Government from other sources. In the event of its being found necessary to raise & supplementary foreign loan, either for the completion of the present line or for the construction of branches or extensions, the Imperial Chinese Government will first apply to the Corporation.
If, after completion of the line, there remain surplus loan funds unappropriated, they will be used either for the payment of loan interest or for the improvement of the line.
For the work of construction the Imperial Chinese Government will appoint a fully qualified British Chief Engineer, acceptable to the Corporation; he will be under the orders of the Managing Director, and will carry out all the wishes of the Administration with regard to the plan and construction of the line.
The proceeds of the loan will be drawn in amounts to suit the progress of construc- tion of the railway by orders upon the Hong Kong and Shanghae Banking Corporation, London, signed by the Managing Director of the railway, and accompanied by the certificate of the Chief Engineer, stating the nature and cost of the work to be paid for.
10. The Railway Administration will publish every six months, in the English language, a report of the working accounts and traffic receipts of the railway, which will be procurable by the public on application.
11. The Corporation being cutitled, under the terms of a Preliminary Agreement, to a commission on materials and a share in the net profits of the line in return for services to be rendered in respect to its construction and operation, it is agreed that these will be commuted by a cash payment of 127,5004, calculated on the following
basis-
As commuted commission on materials, 24 per cent, on the amount of the loan; As commuted share of profits, 6 per cent. on the amount of the loan, or a total of 8 per cent. on 1,500,000l., equal to 127,5001.; which the Corporation will be authorized to deduct from the net proceeds of the loan.
In return for this remuneration the Railway Administration is entitled to require the Corporation to superintend the purchase of any materials of foreign origin required for the construction and equipment of the railway, preference being given to goods of British
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