XN000022-1976-05-26 — Page 9

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WEDNESDAY, MAY 26, 1976

GUARANTEE FOR MTR TO ISSUE BONDS

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THE LEGISLATIVE COUNCIL TODAY APPROVED A RESOLUTION AUTHOR ISING THE FINANCIAL SECRETARY TO GRANT A GUARANTEE ON BEHALF OF THE GOVERNMENT TO ENABLE THE MASS TRANSIT RAILWAY CORPORATION TO BORROW MONEY LOCALLY BY ISSUING HONG KONG DOLLAR BONDS OF UP TO $400 MILLION,

IN MOVING THE MOTION, THE ACTING FINANCIAL SECRETARY, THE HON. DEREK JONES, SAID HE WAS UNABLE TO SAY AT WHAT PRICE AND AT WHAT RATE OF INTEREST THE BONDS WOULD BE OFFERED.

+A DECISION ON THESE MATTERS HAS NOT YET BEEN MADE AND, INDEED, CANNOT BE MADE UNTIL THE FORMAL ANNOUNCEMENT OF THE ISSUE. THE TERMS OF THE ISSUE WILL, OF COURSE, NEED TO BE CLOSELY RELATED TO MARKET CONDITIONS AT THE TIME IT IS ANNOUNCED.+

REFERRING TO THE GUARANTEE, HE EMPHASISED THAT THIS WOULD ONLY BE A GUARANTEE OF THE REPAYMENT OF PRINCIPAL AND NOT OF PREMIUM OR OUTSTANDING INTEREST.

+BY PREMIUM, I REFER TO A REDEMPTION PRICE ABOVE PAR WHICH WOULD BE PAYABLE BY THE CORPORATION IF IT EXERCISES THE OPTION TO REDEEM THE BONDS BEFORE THE DUE DATE. THIS WOULD CLEARLY BE INAPPLICABLE IN CIRCUMSTANCES IN WHICH THE GUARANTEE WOULD OPERATE.+

TOUCHING ON THE AMOUNT TO BE GUARANTEED BY THE GOVERNMENT, HE SAID IT WOULD BE UP TO A MAXIMUM OF HK$400 MILLION AND SUCH ADDITIONAL AMOUNTS AS MIGHT BECOME PAYABLE UNDER THE TERMS OF THE ISSUE.

MR. JONES EXPLAINED THAT THE BONDS WOULD BE ISSUED ON THE UNDERSTANDING THAT, SHOULD ANY WITHHOLDING TAX ON PRINCIPAL BE LEVIED, THEN THE CORPORATION WOULD PAY TO THE BONDHOLDERS SUCH ADDITIONAL AMOUNTS AS WOULD RESULT IN THE RECEIPT BY THE BONDHOLDERS OF THE SUMS WHICH WOULD HAVE BEEN RECEIVABLE BY THEM HAD NO WITHHOLDING TAX ON PRINCIPAL BEEN LEVIED.

HOWEVER, HE SAID THIS WAS A STANDARD PROVISION IN INTERNATIONAL BOND ISSUES AND, AS IT WAS HIGHLY UNLIKELY THAT A WITHHOLDING TAX ON PRINCIPAL WOULD EVER BE INTRODUCED IN HONG KONG, ALL THIS WOULD BE LARGELY ACADEMIC IN THE LOCAL CIRCUMSTANCES.

HE POINTED OUT THAT THE PROCEEDS OF THE PROPOSED BOND ISSUE WOULD BE USED TO HELP PAY FOR CONTRACTS FOR THE CONSTRUCTION OF THE MODIFIED INITIAL SYSTEM ON THE MTR WHICH HAD EITHER ALREADY BEEN LET, OR WOULD BE LET LATER THIS YEAR.

/+THERE IS