TNAG-0037-FCO40-73-Effort-to-improve-relations-with-Hong-Kong-1968 — Page 65

CONFIDENTIAL

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they hold proforontial loan stock instead of equity sharos. Thoro aroothor ways in which the initial

shareholders' position can be secured by comparison with lator subscribers. (The lion on earnings montionod in paragraph 5 will socuro the same ond after completion);

(a) the Hong Kong Governmont modifies its position on prior

charges on the income of the Tunnel Company. The Hong Kong Govornont is to receive payments under four main hoads:-

(i) charros for land;

(ii) royalties (for land and compensation to the

forry companies);

(iii) rates; and

(iv) profits tax.

Since the asset will be created by tho loan, H.M.G. would profor a prior chargo on carnings for ropaymont of the loan. They are propared to accopt an oqual position. In recognition of the peculiar difficulties about ratos and taxos, H.M.G. are propared to allow these to have first

charge, the loan to rank socond for a liko amount and thon oqually with the Hong Kong Government on (i) and (ii)

abovo until ono or the other is satisfied.

(Neto: If frosh priority categories are clained by tho

Hong Kong Govornmont, we will consider thon);

(o) the Hong Kong Government undertako to ensure that financo

is mado available to comploto the contract if costs were

to increaso. This might be by increase in subscribed

capital borrowing or otherwise. No incroaso boyond £10

million will bo agrood in any circumstancos in the loan

guarantood by .C.G.D. But H.H.G. must be assured that tho

project will be completed. B.C.G.D. normally sock sono such

assurance unless the borrower's assets are clearly sufficient

for contingencies. The World Bank similarly sook such

assurance;

(f) the Export Credits Guarantoo Department arc satisfied as

to the contractual details (sco paragraphs 7 and 8 bolow);

(g) in the event of the guarantee boing cellod, the Hong Kong

Government will exorcise its best ondoavours to recover

paymont from the Tunnel Company and any suns rocovorod shall

be shared equally between the Government of Hong Kong and

H.M.G.

CONFIDENTIAL

/7. E.C.G.D.