65 000 V
ASEXPOR A PARIS 007 1454
ECOD HQ LDN
21823
SRL 511
FROM PAXMAN
FOR RICHARD MOÙNET
COPY OF TELEX SENT /TO
21823
Mr
DRE E FOLLOWS
K. PRYOR
Special Creep
SRL 510
FROM PAXMAN 7/12/69
FOR FREYCHE
YOUR TELEX 4267 HONGKONG HARBOUR TUNNEL.
IT IS GENERALLY ACCEPTED THAT THE CROSS HARBOUR TUNNEL COMPANY AS AT PRESENT CONSTITUTED WITH AN AUTHORISED CAPITAL (NOT YET SUBSCRIBED) OF NO MORE THAN 5.64 MILLION POUNDS IS NOT ADEQUATELY CAPITALISED TO BORROW SOME 12.5 MILLION POUNDS OF LOAN CAPITAL FOR A PROJECT OF THIS NATURE . THE COMPANY IS SEEKING LOAN CAPITAL, REPAYMENT OF WHICH WOULD · BE DEPENDENT UPON THE SUCCESFUL OPERATION OF THE TUNNEL. SOME FORM OF SECURITY THAT REPAYMENT WILL BE MADE IRRESPECTIVE OF SUCCESS OR FAILURE OF THE TUNNEL IS THEREFORE ESSENTIAL. IF THIS IS NOT INSISTED UPON THE LENDER WILL BE PROVIDING A FORM OF EQUITY INVESTMENT IN THIS HONG KONG PROJECT E. C. G. D. DO NOT GUARANTEE EQUITY INVESTMENT.
2.
WE WOULD NOT FIND THE SECURITY REFERRED TO IN YOUR TELEX, NAMELY A MORTGAGE ON THE TUNNEL AND A LIEN ON ITS REVENUE A SUFFICIENT ACCEPTABLE SECURITY, DEPENDENT AS IT IS UPON THE OPERATION OF THE TUNNEL.
3.
WE LAST YEAR OFFERED TO GUARANTEE A LOAN TO THE CROSS . HARBOUR TUNNEL COMPANY FOR ABOUT 75% OF THE ESTIMATED CONTRACT PRICE SUBJECT TO THE DEBT BEING JOINTLY AND SEVERALLY GUARANTEE BY THE MAJOR PROSPECTIVE SHAREHOLDERS OF THE COMPANY WHICH INCLUDES, WE UNDERSTAND, THE GOVERNMENT OF HONG KONG). SUCH A GUARANTEE IS IN OUR VIEW ESSENTIAL AS SECUIRITY
THAT THE LOAN WILL BE REPAID WHETHER OR NOT THE TUNNEL PROVES
A FINANCIAL SUCCESS. THE SHAREHOLDERS WERE NOT HOWEVER PREPARED
SUPPORT THEIR STRANGE |||
TO US IF THEY DID NOT CONSIDER THAT THE PROPOSITION WAS A PARTICULARLY RISKY ONE,
4.
IN
WE CONSIDER THIS TO BE A NORMAL REQUIREMENT OF A LENDER CIRCUMSTANCES OF THIS KIND SINCE IN THE ABSENCE OF SUCH A GUARANTEE, THE INSURER WOULD IN EFFECT BE INSURING THE RISK OF THE PROJECT FAILING TO EARN SUFFICIENT REVENUE TO DEFRAY THE COSTS OF CONSTRUCTION. THIS IS A RISK APPROPRIATE TO THE EQUITY SHAREHOLDERS, IT IS NOT A FUNCTION OF THE CREDIT INSURER TO ACCEPT SUCH RISKS. FURTHERMORE, IT IS IN OUR EXPERIENCE A NORMAL FEATURE OF PROJECTS OF THIS NATURE EXTENDING OVER A RISK PERIOD OF NINE OR TEN YEARS FOR THE GOVERNMENT OR CENTRAL BANK OF THE COUNTRY CONCERNED TO GIVE ITS GUARANTEE OF REPAYMENT OF THE DEBT.
5.
GRATEFUL TO KNOW BEFORE YOU ENTER INTO ANY COMMITMENT WHETHE YOU CONCUR WITH THIS VIEW OF SECURITY OR WHETHER YOU WOULD
BE PREPARED TO ACCEPT LESSER SECURITY, AND IF SO ON WHAT BASIS.
THIS MESSAGE, GOES TO DREE AND IS COPIED TO COFACE
+++
PERF CL 7/1330 1/69
ASEXPOR A PARIS
ECGD HQ LDN
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