TNAG-0037-FCO40-73-Effort-to-improve-relations-with-Hong-Kong-1968 — Page 64

CONFIDENTIAL

- 2.

5.

If E.C,G,D, cannot secure a sufficient guarantoo, it will bo unable to underwrite the project. What is required is a guarantee secured on the

Hong Kong Government's assets hold in London. It is suggested that the

Hong Kong Government would have to mako public its provision of such a guarantee, and it is understood that they are for this roason unwilling to give it.

D.C.C

.

.G.D. has now proposod that the Hong Kong Government should irrevocably instruct their bankers or agents in London to pay on prosentation the Promissory Notos which the lending bankers will have bought. This would not attach a fixed sum or require any froozing of assets and should give the lending bankor tho right to ask for and obtain payment in London whon Notos matured or whon intorest fell due without further specific authorisation from the Hong Kong Govornmont. If the Tunnol Company make other acceptablo arrangonents for payments, thon this facility will only bo used by B.C.G.D. in the event of dofault. The guarantee from tho Hong Kong Governmont (and H.M.G's backing to 50%) will bo called on in the ovent of failure to pay interest or to ropay capital at the duo datos in any circumstances whothor political, technical or operational. This demonstrates in a roal way H.M.G's confidenco in the futuro of the Colony by taking on half the risk of default, including any that might rosult from inadoquato incomo to scrvice tho loan as a result of poor performance in operating the Tunnel. Additional, E.C.G.D. will require a lion on oarnings.

6.

As a condition of accepting this sharo of the risk D.M.G. would requiro

that:-

(a) the Tunnel Company's money be committed fully before the

loan is drawn on. That is that the first payments duo would be not out of the subscribod capital to the maximum oxtont possible and that drawings on the loan would not bogin until the available funds woro oxhausted;

(b) to this end, H.M.G. would wish the consulting engineers'

contract to be combined with the construction contract, so increasing the direct payments by the Company by the amount (approximately £1.1 million). So far as this required the use for other purposes of funds carnarkod for the consulting onginoors, a liko amount would be rolcased from tho bank loan (which would remain at £10 million) to pay the consultants;

(c) the shareholders waivo any clain to interest during

construction and the money so saved be applied to construction from the first. Thoirs is an equity participation and H.M.G. cannot agree to participato with the Hong Kong Government

in the risks offoctivoly tho equity risks as joint

guarantors of a sum inflated by shareholders interest as if

/they

CONFIDENTIAL