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It is eventually agreed to take these counter-proposals as the basis for negotiation, comparing them seriatin with the draft of Final Agreement, the Viceroy's Representatives being of opinion that his Excellency will abide by these terms, especially if the question of control is settled to his satisfaction.
An informal discussion takes place on this subject, the Chinese Representatives holding that if China guarantees the interest on a Government railway loan, the final control in construction and working of the line must rest with the Chinese authorities.
Mr. Cordes, on the other hand, points out that so long as the loan remains unredeemed, the interests and rights of the bondholders are entitled to effective representation and protection by their representative agents, the Syndicate, The proposal that in matters of difference the decision of the Director-General should be final, is impracticable, an opinion in which Mr. Bland concurs. The point is left for settlement hereafter under Article 10.
Omitting for the present discussion of the terms of the preamble, the first six Articles are discussed with the following results :----
1. Liang Taotai suggests the possibility of a 4 per Cent. Loan, but it is eventually agreed to allow this Article to stand uramended, leaving the amount of the loan undeter- mined until the question of price shall have been arranged under Article 13.
The railway to be known as the "Tientsin-Yaug-tsze Railway."
2. The terminus of the southern section of the railway is to be Puk'ou instead of Kuachou (Chinkiang).
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3. To meet the views of Liang Taotai the words "which should not exceed four years are substituted for the words "which is considered to be six years" in the first paragraph of this Article.
In the second paragraph, after the word agreement, it is decided to insert the words "by reason of any cause other than those provided for in Article 16 hereinafter." Mr. Cordes objects to the principle of forfeiture, pointing out that in the present negotiations the Chinese Government is dealing with financial institutions of established reputation, whose interests and good name in China must necessarily be of a permanent nature. For this reason, precautions to prevent the recurrence of the state of affairs which occurred in the Yueh-Han line appear unnecessary and ill-advised. Chow Taotai concurs in a suggestion made by Mr. Bland that the Chinese Government's interests should be sufficiently protected by the insertion of a clause in Article 16 to the effect that if the Syndicate should desire to postpone the performance of the contract owing to the condition of the money market, the matter would be amicably discussed and arrauged with the Representative of the Chinese Government,
4. The Article is allowed to stand as in the Syndicate's draft, the additional words contained in the counter-proposals being recognized as unnecessary and confusing. 5. Liang Taotai thought that his Excellency the Viceroy might desire to reduce the term of the loan to thirty years. This Article was only partially discussed, the text of the counter-proposals being left for future consideration.
6. In regard to the redemption of the loan, or portion thereof, in advance of the dates prescribed in the amortization schedule, it is understood that, provided the other conditions of the contract can be satisfactorily arranged, the Syndicate may be prepared to agree to the conditions laid down in the counter-proposals, that is, redemption after twelve and a-half years, at a premium of 24 per cent. after thirty years at par, it being provided, however, that due notice be given for the information of the bondholders concerned. If the Directors of the Syndicate authorize this important modification of the loan terms, it will be with a view to facilitating the conclusion of negotiations.
At this point, after arranging for the next meeting at 3 P.M. on Saturday, the 1st September, the meeting adjourns.
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Inclosure 5 in No. 1.
Minutes of the Nineteenth Meeting held at the Office of the Haikwan Taotai at Tien-tsin, on Saturday, September 1, 1906.
Present:
Taotai Liang Tun-yen, representing the Viceroy. Tantai C. L Chow,
*
Mr. II. Cordes, representing the Deutsche-Asiatische Bank.
Mr. J. O. P. Bland, representing the Chinese Central Railways (Limited).
The discussion of the Chinese Government's counter-proposals was resumed at Article 7.
Article 7--A question arises as to the intention and effect of the clauses in this Article referring to payments of interest and capital made in Europe, and particularly to the stipulation that interest shall be allowed on such payments. No satisfactory solution being arrived at, the clause is left in abeyance, but Mr. Cordes records his opinion that it is unusual and calculated to create misunderstanding.
A suggestion is made by Liang Tantai that interest should be allowed on payments of principal and interest for the period of twenty-one days before due date, during which the banks hold these funds for distribution to the bondholders, but it is pointed out that the allowance of such a period for the necessary banking arrangements without interest claimed, is usual in all Chinese Loan Agreements, and that the Syndicate could not consent to a proposal of the kind which would involve the banks in direct loss.
Article S.---The sense of the meeting is recorded in favour of retaining the Article, as drafted in the original Preliminary Agreement, which prescribes the procedure to be followed for making good interest and capital payments, in the event of the revenues of the railway proving insufficient for the purpose. If this is done reference to the Central Government's responsibility will be deleted wherever it occurs in other Articles. Article 9-For the words "lines named in clause 2," the word railway" is
substituted.
The Chinese Commissioners accept the inclusion of provision for temporary transfer of the line to the Syndicate in the event of default, as prescribed in the draft Agree- ment, and agree to adopt for this clause the form of the corresponding Article in the Shanghae-Nanking Loan Agreement, with an additional paragraph allowing a reasonable period of grace: say, three months.
Article 10.-The second paragraph of this Article is placed after paragraph 4, the remainder of the Article being accepted.
Article 11.-The additional paragraph in the draft Agreement is accepted for inclusion in this Article.
Article 12.--Unchanged.
Article 13.-The Chinese Government's proposal to make the loan "in one issue divided into several calls" is fully discussed, and its impracticable nature explained. It is realized that the intention of the Government is to prevent loss of interest by borrowing funds at different rates as construction proceeds, but the Chinese Representa- tives recognize that the conditions under which loans are floated in Europe render it difficult to provide for more than two or three şeries. In this connection Mr. Bland lays stress on the difficulties and objections inseparable from naming a fixed price, binding alike on the Chinese Government and on the Syndicate, for loan issues which may not be required for several years, and suggests as an equitable and convenient alternative that the Chinese Government should allow the Syndicate a fixed rate of commission on flotation, the loan issues being then made to nieet the Chinese Govern- ment's requirements, the Syndicate being relieved of responsibility for money market fluctuations beyond its control, and all possible cause of delay and disagreement thus removed. He instances the case of the Shanghae-Nanking Loan Agreement where the price was definitely fixed at 90 in the contract and subsequently disputed--the Chinese Representatives concur in the view that this means many difficulties would be eliminated.
It is noted that the Syndicate has not made any proposals in this sense, and that any negotiations on this basis would require to be confirmed. He suggests that at a commission rate of 5 points business might be possible.
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