TNAG-0097-FCO40-133-Construction-of-a-Cross-Harbour-Tunnel-1968 — Page 130

CONFIDENTIAL

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5.

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

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

(c) an irrevocable undertaking by these 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 Tunnel Company in approved proportions to raiso its prosont capital of £625,000 to £7 million.

In acknowledging Costains' offor the Tunnol Company referred to those three 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 companios could not be provided,

6. Consequently the Company was informed that E.C.G.D. would guarantop a loan of 75% of the contract price (i.c. of noarly £10 million) and that, while waiving the requirement for a joint guarantco would still roquire sovoral guarantocs from the major shareholders of the full indebtedness of tho Tunnol Company in proportion to their own holdings in rospect of the overall ten years of construction and ropayment during which E.C.G.D. would be at risk.

7. Wo suggested to the Hong Kong Governmont that, in vicw of their interest, they might tako the load in an effort to obtain those guarantees, It was pointed out that if B.C.G.D. wore to underwrite this loan without such guarantees, they would be acting on the solo socurity of successful operation end would bo totally unsecured during the three years of construction. Morcovor, E.C.G.D. guarantoo would thus bo performing tho function of risk capital without any control of the nonagonent of the project, and would be taking on speculative risks at fixed interest rates well

below the roturn such risks would justify.

8. The Hong Kong Government were 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 sharoholdors, while apparently agreeing with E.C.G.D. in May to put up a 100% guarantoo, in Juno indicated through the Governor that they wore no longer willing to act as guarantors for the other equity subscribers. In July tho Tunnol Company informed the Hong Kong Government that the commercial shareholders proposed to limit their holding to a total of $61 million (i.o. 55% compared with their original 77%) and

CONFIDENTIAL

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