TNAG-0097-FCO40-133-Construction-of-a-Cross-Harbour-Tunnel-1968 — Page 111

CONFIDENTIAL

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If E.C,G,D, cannot socuro a sufficient guarantoo, it will be unable to underwrite the project. What is requirod is a guarantee secured on tho Hong Kong Government's assets held in London. It is suggested that the Hong Kong Govornnont would have to nako public its provision of such a guarantoo, and it is understood that they are for this reason unwilling to give it. E.C.G.D. has now proposed that the Hong Kong Government should irrevocably

14 d. 6 of maturit instruct their bankers or agents in London to pay on prosontation the Promissory

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Notos which the lending bankors will have bought. This would not attach a fixed sun or requiro any freezing of assets and should give the londing banker the right to ask for and obtain paymont in London whon Motos natured or when interest foll due without further specific authorisation from the Hong Kong Government. If the Tunnel Company make other acceptable arrangements for payments, thon this facility will only be used by B.C.G.D. in the event of default. The guarantco from the Hong Kong Governmont (and H.M.G's backing

pay it half wil to 50%) vill bo callod on in the ovent of failuro to pay interest or to ropay

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capital at the due dates in any circumstances whether political, technical or(pened. operational. This demonstratos in a roal way H.M.G's confidence in the futuro

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of the Colony by taking on half the risk of default, including any that might result from inadequato income to service the loan as a result of poor performance in oporating the Tunnel. Additional, E.C.G.D. will require a lion on carnings.

Save 6(d) As a condition of accepting this share of the risk I.M.G. would require

that:

capital. punte normal Captain where on in way. No cash equivalent of $10m.

(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 subscribod capital to the maximum

extent possible and that drawings on the loan would not bogin until the available funds wore exhausted;

(b) to this ond, H.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 tho uso

for other purposes of funds carmarked for the consulting

onginoors, a like amount would be released from the bank loan (which would romain at £10 million) to pay the consultants;

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it is understand

(c) the shareholders waive any clain to interest during

construction and the money so saved bo 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 effectively tho oquity risks - as joint

guarantors of a sun inflated by sharchol dors intorost as if

CONFIDENTIAL

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