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PUBLIC RECORD OFFICE

Reference :~~~

TPERFIC.O. 882

6 PUBLIC RECORD OFFICE, LONDON

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC- COPYRIGHT PHOTOGRAPH—NOT TO

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£1,500,000, only £1,000,000 of this will rank as entitled to interest in calculating the net profits. The Engineer's estimate for the construction and equipment of the British section is put down in the same document at £488,317, but Mr. Ross states that he was authoritatively informed that it would be nearer £600,000. The net profits if divided according to mileage would be as 4 to 1, but if divided according to the actual amount of capital expended on construction and equipment would work out as 5 to 3. On this question, therefore, there is likely to be much oppo- sition from the Chinese side.

I enclose also copy of a letter addressed to me by Mr. Ross, in which these questions are discussed, and your Lordship will see that he advises the amount of the loan should be stated as 'not more than £2,000,000.”

Copy of this despatch, with enclosures, has been forwarded to the Governor of Hong Kong.

The Marquess of Lansdowne, K.G.,

&c.,

&c.,

&c.

Sub-Enclosure (1) in No. 93. ›

I have, &c.,

ERNEST SATOW.

The British and Chinese Corporation, Limited.

Rough Pro-forma Estimate of Amount of Loan required for Canton-Kowloon Railway (Chinese Section.)

Loan £1,500,000 at 90

Deduct interest and service of loan during construction, two

years at 5 per cent. and 4 per cent.

£1,350,000

150,376

£1,199,624

Add interest on loan funds pending expenditure, say

34,198

Available for purposes specified below

Land, say, as a purely arbitrary figure

£1,233,822

£100,000

Engineer's estimate

Construction and equipment, 101 miles:-

British and Chinese Corporation's commis-

sion on materials, say ...

Working capital, say, as a purely arbitrary figure

£979,659

20,341

£1,000,000

100,000

£1,200,000

Margin

£33,822

123

"

would actually get only £1,350,000. In previous railway loans, as far as I am aware, nothing has ever been provided for "working capital" or whereas in the enclosed estimate, in order to comply with Clause 10 of Schedule margins," and leave a margin for contingencies, these amount to £133,822, a sum almost sufficient to provide for the two additional years' interest which may be required in the event of the Hong Kong section taking four years to build. this matter with Sir Matthew Nathan, he seemed to think that the Hong Kong sec- In discussing tion might be built more expeditiously, and possibly the Chinese section might take little longer than anticipated, in which case the opening of the two sections would come nearer together than at present we expect.

a

The Chinese, however, may not raise the question at all, and in order to prevent further delay in commencing this line, the Corporation's present feeling is to fill in two millions as the amount which the loan is not to exceed. The importance of filling in a safe figure is that the agreement specifies a maximum amount, but does not provide for what is to be done in the event of the loan proving insufficient, and in this case it is not only the completion of the line which has to be provided for, but also the provision of the working capital from time to time and for im- provements. Therefore, as they view the situation at present, they think two millions should be provided for, but, of course, they would not think of issuing it all in the first instance. Another point which may or may not be worthy of con- sideration, is the probability that the Chinese would value their proposed partner- ship with Hong Kong more highly and prove easier to work with hereafter, if they found from a short experience that their own section of the railway was by itself unprofitable.

With regard to Section 16 this is a clause on which I anticipate much dis- cussion. Our own experience, however, in dealing with Chinese officials is to ask for more than we expect to get, so as to leave a margin for concessions later on, and possibly the Colonial Office in passing this clause held somewhat similar views.

I have wired to Hong Kong for the Engineer's report on the proposed line, and it should reach me within the next ten days; meanwhile I am engaged on the short summaries of the Loan Agreement and Schedule, which, I must confess, I do not find as easy a matter as I anticipated.

Yours, &c.,

CHARLES H. Ross.

The question of providing more margin must be considered, and as work is to begin simultaneously with the British section, and the British section is estimated to occupy four years against two years for the Chinese section, it follows that for two years after completion the Chinese section will have to rely entirely upon its own traffic to pay the interest on the bonds, failing which the Chinese Government will have to provide it; the only alternative being to increase the loan to a safe figure (of which the whole need not be issued), or to take power in the agreement to issue supplemental pari passu bonds in the event of the principal loan being insufficient.

The Engineer's estimate for the construction and equipment of 24 miles in British territory exclusive of land is £488,317.

Sub-Enclosure (2) in No. 93.

The British and Chinese Corporation, E-Wo, Peking,

April 17, 1905.

DEAR SIR ERnest Satow,

In accordance with your request I enclose a copy of the rough estimate of amount of loan required for the Canton-Kowloon Railway. In this estimate you will observe the nominal amount of the loan is placed at £1,500,000, but the Chinese

THE BRITISH AND CHINESE CORPORATION, LIMITED,

ROUGH PRO FORMA ESTIMATE of Amount of Loan required for Canton-Kowloon Railway. (Chinese Section.)

Loan, £1,500,000, at 90 Deduct interest and service of loan during construction, two years, at 5 per

cent. and per cent.

Add interest on loan funds pending expenditure, say

Available for purposes specified below

Land, say, as a purely arbitrary figure Construction and equipment, 101 miles:-

Engineer's estimate

British and Chinese Corporation's commission on

materials, say

Working capital, say, as a purely arbitrary figure

Margin

£1,350,000

150,378

£1,199,624

34,199

£1,233,622

£100,000

£979,652

20,341

1,000,000 100,000

£1,200,000

£33,822

The question of providing more margin must be considered, and as work is to begin simultaneously with the British section and the British section is estimated to

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