XN000022-1976-11-24 — Page 3

WEDNESDAY, NOVEMBER 24, 1976

IN CLARIFYING RECENT PRESS AND TELEVISION COMMENT ON THE PROJECT, MR. HADDON-CAVE SAID THAT WHEN THE ESTABLISHMENT OF THE MASS TRANSIT RAILWAY CORPORATION WAS ANNOUNCED, THE CORPORATION'S CHAIRMAN STATED THAT CAPITALISED INTEREST CHARGES ON LOAN FINANCE DRAWN DOWN BEFORE THE RAILWAY BEGAN TO GENERATE A CASH FLOW WAS LIKELY TO BE ABOUT HK$900 MILLION,

+THIS FIGURE WAS NEVER INCLUDED IN THE ESTIMATED COST OF THE PROJECT AT $5,800 MILLION, THAT IS TO SAY, PRE-CONTRACT EXPENSES AND THE VALUE OF ALL CONTRACTS INCLUDING AN ALLOWANCE FOR ESCALATION OF COSTS THOUGH IT WAS ALLOWED FOR, OF COURSE, IN THE VARIOUS CASH FLOW STUDIES DONE OVER THE YEARS FOR THE PURPOSE OF ASSESSING VIABILITY, HE SAID.

+SUBSEQUENTLY, HE CONTINUED, +WHEN THE CORPORATION'S HK$400 MILLION BOND ISSUE WAS MADE IN JUNE THIS YEAR THE PROSPECTUS FOR THE BOND ISSUE CONTAINED AN ESTIMATE FOR THE CAPITALISED INTEREST CHARGES ON BORROWINGS FOR THE PROJECT AS A WHOLE DURING THE CONSTRUCTION PERIOD.+

THIS WAS A FIGURE OF HK$939 MILLION AND THE CHAIRMAN IN A RECENT SPEECH MENTIONED HK$1,000 MILLION, THE FINANCIAL SECRETARY SAID.

+BUT THIS WAS A BROAD BRUSH ESTIMATE AND IN FACT THERE HAS BEEN NO UPWARD ADJUSTMENT IN THE ESTIMATE FOR THESE CHARGES WHICH, BY THEIR VERY NATURE, ARE DIFFICULT TO QUANTIFY SEVERAL YEARS IN ADVANCE (THOUGH THEY CAN BE VARIOUSLY ALLOWED FOR IN CASH FLOW STUDIES),+ HE ADDED.

HE STRESSED THAT IT HAD ALWAYS BEEN RECOGNISED THAT THE CAPITAL ISATION OF INTEREST CHARGES INCURRED DURING THE CONSTRUCTION PERIOD WOULD ACCRUE OVER AND ABOVE THE ESTIMATED COST OF THE PROJECT AND ASSURED THE COUNCIL THAT THESE INTEREST CHARGES DID NOT REPRESENT UNFORESEEN ADDITIONAL EXPENDITURE.

IN REPLY TO A SUPPLEMENTARY QUESTION FROM THE HON. T.S. LC, THE FINANCIAL SECRETARY SAID THE FOREIGN EXCHANGE RISK INVOLVED IN THE SERVICING OF THE CORPORATION'S FOREIGN EXCHANGE LIABILITIES WAS A QUESTION WHICH THE BOARD OF THE CORPORATION HAS TAKEN

INTO CONSIDERATION AND WOULD CONTINUE TO DO SO AS ITS FINANCING STRATEGY WAS DEVELOPED.

HE ADDED THAT THE CORPORATION'S DEBT LIABILITIES WERE NOT ENTIRELY DENOMINATED IN FOREIGN CURRENCIES BY ANY MEANS, AS A MATTER OF DELIBERATE POLICY.

HE REITERATED THAT THE CORPORATION WOULD CONTINUE TO TRY TO ARRANGE LONGER TERM FINANCE IN HONG KONG DOLLARS AND FORE IGN CURRENCIES IN PLACE OF EXISTING SHORTER TERM FACILITIES,

+SO, WHENEVER IN THE FUTURE 1 HAVE TO ASK THIS COUNCIL TO AMEND THE SCHEDULE TO THE ORIGINAL RESOLUTION, THE REASON WILL SIMPLY BE TO AFFORD THE CORPORATION GREATER SCOPE FOR ARRANGING FINANCE ON MORE FAVOURABLE TERMS,+ MR. HADDON-CAVE ADDED.

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