TNAG-0097-FCO40-133-Construction-of-a-Cross-Harbour-Tunnel-1968 — Page 12

CONFIDENTIAL

As I see it, the position about a year ago was that the

Tunnel project was entirely a commercial venture in which the

interest of the Hong Kong Government was restricted to a minor

shareholding. Indeed, the Hong Kong Government had refused to

give a guarantee on the proposed bank loan in proportion to its

shareholding,interest. On the other hand, the two major share-

holders, Hutchison International and Wheelock Marden, had accepted

the need to put up suitable guarantees for the full amount of the

loan. With the start of the political disturbances in Hong Kong

the situation changed. The commercial shareholders informed the

Government that they proposed to limit their shareholding in the

Tunnel Company to 55% instead of 771% and at the same time they

withdrew as prospective guarantors of the bank loan. The Governme

then indicated that they might be prepared to take up the balance

of the shareholding, thus giving it effective control of the

project. The Government took such a line because the project

became important, not because of its commercial viability, but.

because it became a suitable exercise for demonstrating the faith

which Britain and the Hong Kong Government had in Hong Kong'ı

future. E.C.G.D. reacted to the changed situation by concluding

that the only acceptable security for the proposed loan would be

a 100% guarantee of payment given by the Hong Kong Government.

For purely political reasons H.M.G. agreed to underwrite 50% of

any call made on the Hong Kong Government's guarantee by E.C.Q.D.

This, I am sure you are aware, was an exceptional offer and it

carried with it some fairly strict conditions. One of these, that

the Tunnel Company's money should be committed before the loan

was drawn on, was unacceptable to the private shareholders (your

letter of 10th November refera) and others (although we do not

know which) were apparently unsoceptable to the Government.

/Now