6. You were perfectly correct not to pursue Clague's pipe dream about our insuring a percentage of a loan free of guarantees. Any such lending can only be made in the expectation of the project being profitable; in other words the lender takes part of the equity risk. We have plainly said throughout that we are not prepared to do this; I doubt whether any other lender will do so either, without a share in the equity returns. However if the Tunnel Company does succeed in getting a loan from Switzerland or America this would be fine, so long as the Tunnel Company were free to engage whatever contractor it thought would do the best job; we assume the contractor would be Costains and that they would be paid cash.
7.
Clague complains about "double guarantees"; Cowperthwaite talks darkly about "small print". Are these people so used to borrowing more than £12 millions unsecured? Are conditions of lending such unusual phenomena? No doubt there is
mistrust about previous conditione. Our current offer, however, is the only one that matters. In this the only condition we are insisting upon is sevenlguarantees proportionate to shareholding. Vine has expressed concern about same 25% of the shares being sold to the public within two years. But the guarantees can hardly socompany such shares, sold as they will be to an unknown number of unknown people. The original guarantees, proportionate to the original shareholding must subsist. On Vine's suggested resort to partly paid shares we can only say that this proposition will no doubt be put forward in detail in due course. At present we cannot see quite its value.
8. More generally, while we not surprisingly would seek to obtain whatever security is available, we regard everything apart from the several guarantees as secondary and negotiable. The idea of a fund appeals to us. It was pursued amicably in our initial negotiations with the Tunnel Company, and it should be possible to resume these discussions. The terms of such a fund do of course bring up issues of level of dividend, payments, etc. We were never attracted to the "lien plus mortgage" formula, but it was offered and thus might be something on which both parties could agree. We found the French suggestion that an assurance should be obtained from the Hong Kong Goverment that tunnel charges will be maintained at a viable level a useful and interesting one; although if the Government gives its several guarantee this might be a better way of ensuring that the fare structure is not manipulated for political reasons in a way contrary to the best commercial interests of the Company. Finally, the position on the situation in the event of political takeover is now I hope clear. We would seek residual to be in the normal position of a creditor in such a situation, having rightsiin the Colony, and taking our place with other areditors in the disposal of such assets aa were available for distribution. Your analogy from your Egyptian experience is a correct one.
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in hope all this is now clear. It is most unusual to have to define advance what negotiations, if they even began, would be about, but I would certainly not wish these allegations of "deviousness" to go on if there is anything that can be done to stop them. lave I said above anything that is new to you? I doubt it. But I find it difficult to add anything more: I think you know, and the Tunnel Company people also know (in their less inflamed moments) what our attitude is and has been, and what our requirements are to support this loan. our judgement is not always immaculate; but it becomes rather tedious to be accused of bad faith when none was even intended.
As I have said,
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