TNAG-0097-FCO40-133-Construction-of-a-Cross-Harbour-Tunnel-1968 — Page 115

CONFIDENTIAL

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5.

(b) an irrovocablo lion from the Cross-Harbour Tunnel

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

(c) an irrevocablo undertaking by those two shareholders,

together with the Hong Kong Government, the Hong Kong and Shanghai Bank and any other major shareholder, to subscribo additional capital to the Tunnol Company in approved proportions to raise its present capital of £625,000 to £7 million.

In acknowledging Costains' offor the Tunnel Company referred to thoso throc conditions. Thoy suggested that if the loan could be increased to 75% of the contract valuo "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.

6. Consequently the Company was informed that E.C.G.D. would guarantoo a loan of 75% of the contract price (i.c. of noarly 10 million) and that, while waiving the requirement for a joint guarantee would still roquire sovoral guarantocs from the major shareholders of the full indebtedness of the Tunnel Company in proportion to their own holdings in respect of the overall ten years of construction and repayment during which 3.C.G.D. would be at risk. 7. Wo suggested to the Hong Kong Government that, in view of their intorest, thoy night tako the load in an offort to obtain those quarantocs. It was pointed cut that if E.C.G.D. wore to underwrite this loan without such guarantoos, they would be acting on the solo socurity of successful operation end would bo totally unsecured during the three years of construction. Morcover, E.C.G.D. guarantoo would thus be performing the function of risk capital without any control of the management of the project, and would be taking on speculativo risks at fixed interest rates well below the return such risks would justify.

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

/that

CONFIDENTIAL