TNAG-0098-FCO40-134-Construction-of-a-Cross-Harbour-Tunnel-1968 — Page 7

CONFIDENTIAL

security of successful operation and would be totally

unsecured during the three years of construction.

Moreover, E.C.G.D. guarantee would thus be perfoming 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.

9.

The two major commercial shareholders, while

apparently agreeing with E.C.G.D. in May to put up a 100% guarantee, in June indicated through the

Governor that they were no longer willing to act

as guarantors for the other equity subscribers. July the Tunnel Company informed the Hong Kong Government

that the commercial shareholders proposed to limit

In

their holding to a total of $61 million (i.e. 55%

it's

They

compared with their original 771%) and that they were not prepared to guarantee any part of the loan. asked the Hong Kong Government to take the latter's 25% option ($27.5 million) and to persuade the Yaumati Gerry Company to take up the remaining $21.5 million. The Governor, however, in reporting this approach, said that he might prefer to take up the whole $49 million and to offer the Ferry Company no more than would leave

control in the hands of the Hong Kong Government

and of the Hong Kong and Shanghai Bank.

CONFIDENTIAL