CO129-617-2 Hong Kong Telephone Company 22-2-1947 - 3-11-1947 — Page 23

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we turned down pending the submission or a full financial

statement which they promised but have not hitherto produced.

5.

Now their accountants have come forward with a

proposal that the annual appropriation to the Capital

Reserve Fund should be increased from $92,577 to $170,164.96.

They state that the whole of the Capital Reserve Fund which

amounted to $880,279.03 on the outbreak of war has been

absorbed by war losses, and that the increased appropriation

is necessary to enable the capital to be amortized over the

perioa for which the franchise has still to run. They go

further than this. They request that when we amend the

Ordinance we should not specify the exact sum that may be

placed to Reserve, but should merely allow to go to reserve

annually such appropriations as shall amortize the authorised

(sic) capital over the remaining period of the franchise.

The background to this proposal is that the Company will

probably wish to increase their capital which would increase

the annual appropriation but they point to the possibility

of receiving some tning in the way of compensation for war

damage, which would reduce it.

6. In the absence of any statement of the Company's

financial position it is impossible to say whether the

Royalties will be affected now, but as the Company gets on

its feet again they certainly will be reduced.

7.

If we are asked to forego part of our Royalties

on the profits it does not seem to me that we should continue

to receive only $4 on each exchange line which, now that

charges have been increased, represents a smaller proportion

of the total than in 1940. In other words, I feel that we

should not agree to one amendment unless the whole agreement

is reviewed.

8. Against this, it can of course be argued that

Government has accepted the principle that the Company should

be allowed to amortize its capital over period of the