TNAG-0206-FCO40-242-Construction-of-a-cross-harbour-tunnel--under-Hong-Kong-harb-1969 — Page 44

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Mr. Noreton Sur A. Galsworthy

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Mr. Godden

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It is some time since Lord Shepherd left the matter of Cross Harbour Tunnel, Hong Kong, to be pursued between ourselves and E.C.G.D. Although the situation is still fluid, it is perhaps time to put the Minister in the picture, particularly as he has recently received a copy of a letter on the subject addressed to Col. Clague by another Gommercial Shareholder in the project, Mr. Kadoorie, I think that reply to that letter can well wait for a few days but in the meantime, Lord Shepherd should know what is happening.

2.

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We have, of course, been in touch with E.C.G.D. whose; terms have now more or less crystallised. They now require several guarantees of shareholders in proportion to their Equity holdings, They also propose certain procedural arrangements to secure their access as creditors to the proceeds of the operation of the tunnel. The Hong Kong Government have been told this a telegram and the Commercial Shareholders have been given the same information through the Trade Commissioner. In later telegrams these terms have been spelt out, In particular, E.C.G.D. have explained the matter of inancial guarantees. Very briefly, in

Where they stand on the publical the event of a Chinese takeover, E.C.G.D. would not pursue those

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guarantors who have been forced out of Hong Kong by events. if they continued to be what E.C.G.D. call "Hong Kong entities" Hong Kong then they would E.C.G.D.draws the reasonable parallel of

pursuing enemy debts or debts in occupied territories after the war and this is what they would wish to be in a position to do if circumstances necessitated it. In one view these rerned terms are reasonable sind we accept the Crpowerd's advanced in defence of them portion on

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3.

Recently, however, on top of French competition, the whole issue has been complicated by the entry into the field of an American financier (the Tom Mills Brokerage Company of Chicago) and an unidentified Swiss interest. We have no firm knowledge of the terms these competitors are offering although the indications are that they would both demand a higher rate of interest than E.C.G.D. but would not require among their financial guarantees those of the Hong Kong Government or the Hong Kong Shanghai Bank. In the case of the American Company, the claim made to a Press Conference by a representative of the Company itself in Hong Kong was that the period of the loan would be 20 years instead of 10 which E.C.G.D. are proposing.

Against this background, the Treasury have been considering whether we run any risk in insisting on a Hong Kong Government Guarantee and in an attempt to be satisfied on this point, we have asked Hong Kong for confirmation that they would be prepared to give their individual guarantee. The Governor's reply is that he will be prepared to propose to his Executive and Legislative Councils (the agreement of the latter is necessary both to taking up the Government's share option and to an exten- sion of time for completion of the tunnel) that the Government should give an individual guarantee. But he questions whether the commercial interests will be satisfied on the score of their protection against the political risks. However, that was before E.C.G.D. explained in greater detail the circumstances in which they would cease to invoke their guarantees and it may be that the shareholders will now be satisfied (although fir. Kadoorie

may need some persuading).

5. These are circumstances, of course, in which the Company is well placed to conduct a sort of Dutch Auction amongst the various sources of finance. Moreover, E.C.G.D.'s information continues to be that the French will not make up their minds until March so that if in fact the Company has been made an offer by French commercial interests in the terms reported to us, those interests are out of step with their official Agency C.O.F.A.C.E. with whom ECGI) are mamtaming close contact. These

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