TNAG-0097-FCO40-133-Construction-of-a-Cross-Harbour-Tunnel-1968 — Page 132

With Mr. D. L. Hawkins' compliments

Our Reference:

CONFIDENTIAL

2-P.45/88/01

Your Reference: SL/CW 24126/35

Treasury Chambers

Great George Street, London, S.W.J Telephone: Whitehall 1234, ext. 1143

4th

October, 1967.

کفا

(Gu

Hong Kong Tunnel

I enclose a copy of Hong Kong telegram 1447 which gives the

to our question about the proposed disposal of the shareholders'

answer funds.

2.

A condition of Treasury agreement to Commonwealth Office backing the Hong Kong Government's guarantee was that shareholders' money should be committed first; we hoped to the extent of £71⁄2m. In the light of the explanations given by Mr Cowperthwaite on 25th September, we are prepared to drop the provision that the contract for the approach roads must be included in the main contract. Most of the other items in the telegram are for one reason or another not capable of being incorporated in the U.K. contract and so increase the proportion of direct payments to be made first. But prima facie the £1.1 million payment for consulting engineers fees could be so incorporated. these fees are all payable almost at once, that would increase the direct payments and would be in accordance with the intention of Figgures' letter of 8th September We hope that the Commonwealth office will feel able to put this to the Hong Kong Government.

Unless

3. We can see no justification for reserving part of the shareholders' money to pay them interest during construction. To regard the share- holders subscription as preferential loan stock whilst transferring the equity risks, in effect, to the guarantors, the Hong Kong Government and H.M. Government, at the same time reserving the assets (and subsequent profits) to the shareholders is quite unacceptable. There must be other ways in which the initial shareholders can protect their position vis-à-vis later subscribers. The Company as proposed will not be over-capitalised for the job it is taking on; what capital it does have should be committed to that project. A change here should release a further £0.7m. to be committed first. H.M.G. would not be Justified in even a partial guarantee of a loan inflated to enable the shareholders to secure themselves interest during construction.

4 Other points were raised at the meeting on 25th September. E.C.G.D. are dealing æparately with security for their U.K. loan.

15.

K. W. Cotterill, Esq.

Export Credits Guarantee Department,

59-67, Gresham Street,

E.C.2.

LAST

REF

64

Rtr.