TNAG-0048-FCO40-84-Export-Credit-Insurance-Corporation-1968 — Page 52

CONFIDENTIAL

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5.

If E.C,G,D, cannot secure a sufficient guarantoo, it will be unable to underwrite the project. What is required is a guarantco secured on tho Hong Kong Government's assets held in London. It is suggested that the

Hong Kong Government would have to make public its provision of such a guarantee, and it is understood that they aro for this reason unwilling to give it. D.C.G.D. has now proposed that the Hong Kong Govermont should irrevocably instruct their bankers or agonts in London to pay on presentation the Promissory Notos which the landing bankers will have bought. This would not attach a fixed sun or require any froozing of assets and should give the lending bankor the right to ask for and obtain payment in London whon Hotos matured or when interest fell due without further specific authorisation from the Hong Kong Government. If the Tunnel Company make othor acceptable arrangements for payments, thon this facility will only be used by E.C.G.D. in the event of dofault. The guarantoo from the Hong Kong Governmont (and H.M.G's backing to 50%) will bo called on in the event of failure to pay interest or to repay capital at the duc datos in any circumstancos whether political, technical or operational. This demonstratos in a roal way H.M.G's confidence in the futuro of the Colony by taking on half the risk of default, including any that might result from inadequate incomo to service the loan as a result of poor performance in oporating the Tunnol. Additional, E.C.G.D. will require a lion on carnings.

6.

As a condition of accepting this share of the risk .M.G. would require

that:-

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

loan is drawn on. That is that the first payments duc

would be not out of the subscribed capital to the maximum

extent possiblo and that drawings on the loan would not

bogin until the available funds were exhausted;

(b) to this ond, II.M.G. would wish the consulting engineers'

contract to be combined with the construction contrast, so

increasing the direct payments by the Company by the amount (approximately £1.1 million). So far as this required the usc

for other purposes of funds carmarked for the consulting

engineors, a liko anount would be released from the bank loan (which would remain at £10 million) to pay the consultants;

(c) the shareholders waive any clain to interest during

construction and the money so saved be applied to construction

from the first. Thoirs is an oquity participation and H.M.G.

cannot agroo to participato with the Hong Kong Government

in the risks - offectively tho oquity risks as joint

guarantors of a sun inflated by shareholders interest as if

/they

CONFIDENTIAL