TNAG-0037-FCO40-73-Effort-to-improve-relations-with-Hong-Kong-1968 — Page 68

CONFIDENTIAL

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5.

(b) an irrevocablo lion from the Cross-Harbour Tunnol

Company on the total rovonuo of the tunnel, in favour of the londing Bank;

(c) an irrevocable undertaking by those two shareholders,

together with the Hong Kong Govornont, tho Hong Kong and Shanghai Bank and any other major shareholder, to subscribe additional capital to the Tunnel Company in approved proportions to raise its prosent capital of £625,000 to £71⁄2 million.

In acknowledging Costains' offor tho Tunnol Company referred to those three conditions. Thoy suggostod that if the loan could be increased to 75% of the contract value "this would give your tonder an added financial advantago which could be decisivo". Thoy stated further that a joint and sovoral guarantoo by the two participant companies could not be provided.

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Consequently the Company was informed that E.C.G.D. would guarantop a loan of 75% of the contract price (i.c. of nearly £10 million) and that, while waiving the requironont for a joint guarantoo would still roquire sovoral guarantocs from the major shareholders of the full indebtedness of the Tunnel Company in proportion to their own holdings in rospect of the overall ten years of construction and ropayment during which B.C.G.D. would be at risk. 7. Wo suggostod to tho Hong Kong Govornmont that, in view of their interost, they might take the load in an offort to obtain those guaranteos. It was pointed out that if E.C.G.D. were to underwrito this loan without such guarantees, they would be acting on the solo socurity of successful operation and would be totally unsecured during the throo years of construction. Moreover, E.C.G.D. guarantoo would thus be performing the function of risk capital without any control of the managenent of the project, and would be taking on speculative risks at fixed interest rates well

below the return such risks would justify.

8. Tho Hong Kong Government woro unwilling to agroc to give a guarantoo proportionato to their sharo; and could not thoroforo sock to socuro tho consent of the other sheroholders who were also unwilling to put up a guarantoo. 9. The two najor commercial shareholders, while apparently agrooing with E.C.G.D. in May to put up a 100% guarantee, in Juno indicated through tho Govornor that they were no longer willing to act as guarantors for the other oquity subscribors. In July the Tunnel Company informed the Hong Kong Government that the commercial shareholders proposed to limit thoir holding to a total of $61 million (i.c. 55% compared with thoir original 77%) and

/that

CONFIDENTIAL