XN000022-1995-06-30 — Page 6

· 4 ·

Under the terms of the Airport Committee Agreed Minute signed on November 4 last year, the Government is to inject equity of not less than $60.3 billion into the new airport and the airport railway while the level of borrowing for the projects by the two organisations is capped at $23 billion on completion of the two projects.

The Secretary for the Treasury, Mr K C Kwong, said: "Both the future AA and the MTRC need the Government assurances contained in the FSAs to enable them to raise, in a cost-effective manner, the necessary borrowings in accordance with the Agreed Minute."

One of the most important assurances contained in the FSA cover the circumstances in which additional equity would be required by the MTRC or future AA to enable them to complete the airport railway or the new airport. The FSAs provide that the Government will inject additional equity into the organisations if required due to force majeure or circumstances outside the control of the Government or the MTRC or AA, or for other justifiable reasons.

"Bankers and other institutional lenders do require an explicit assurance in the Government's agreements with the two organisations to ensure that sufficient funds will be available to ensure that the projects are completed," Mr Kwong explained.

"We have taken soundings from the local and international banking community who have assured us that this formulation will provide lenders with an acceptable degree of certainty. Both statutory bodies are also confident of being able to borrow at competitive rates on this basis.

"We have every confidence however that should such a circumstance arise, the requirements for additional equity support from the Government will be kept to a minimum because of the stringent cost monitoring and control procedures we have in place," said Mr Kwong,

The airport FSA provides further comfort to lenders in respect of payments of interest and principal due to them before project completion. The agreement provides that the Government will provide interest-free loans to the AA to meet debt service costs due before completion of the new airport in the event there is a shortfall in funding.

"Agreement on the FSAs removes a major uncertainty facing the airport and the AR (airport railway) projects as the two organisations will now be able to complete the financing of the projects by borrowing commercially in accordance with the Agreed Minute," Mr Kwong said.