CONFIDENTIAL
OUTWARD TELEGRAM
FROM THE COMMONWEALTH OFFICE (The Secretary of State)
TO HONG KONG (Sir D. Trench)
Cypher
HWB 21/5
Sent 4th April 1967.
00.57 hrs.
15
CONFIDENTIAL
PRIORITY
No.649
Hong Kong Tunnel.
As you know, Cross-Harbour Tunnel Company are considering tenders submitted. Clague has been pressing Costains for improvement in proportion of contract price to be covered by loan guaranteed by E.C.G.D. and for removal of the requirement for joint and several guarantees.
2. Clague also put these points to Snelling in Hong Kong. The latter point was not however raised in subsequent letter Clague sent to Lord Rhodes which has been referred to Lord Brown in Board of Trade for reply. It has therefore been assumed that question of removal of requirement for guarantees from shareholders is not being pressed by Clague and we would not in any case wish to encourage him to return to this point. For the reasons outlined below, we see no prospect that this requirement could be waived.
3. You should know in strict confidence that it has now been agreed that E.C.G.D. may guarantee a loan in respect of 75% of price. In informing Clague of this decision within the next week, Lord Brown will be making it clear that this offer is conditional on major shareholders giving their several guarantees of repayment of loan in proportion to their share-holding. (You will note that this is no longer a requirement for a joint guarantee.) If E.C.G.D. were to guarantee the loan of some £10 million to the Tunnel Company without these guarantees, they would be acting on the sole security of successful operation and would be totally unsecured during the three years of construction. Moreover E.C.G.D. guarantee would thus be performing the function of risk capital without any control of the management of the project, and would be taking on speculative risks at fixed interest rates well below the return such risks would justify.
4. By contrast the two major shareholders would be risking equity capital of less than £6 million between them.
5. We appreciate your reluctance to become over-involved in investment by private financial interests. It would, however, seem appropriate that, in line with views expressed to Secretary of State during his recent visit, Hong Kong Government should give a lead by undertaking to guarantee a portion of the loan proportionate to their own holding in the Tunnel Company, and should impress on the major shareholders the need for them to accept similar responsibilities. We should be grateful if you would consider whether you could take this initiative.
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