It would clearly be impossible to proceed against the shareholders if they were taken over or ceased to
oxist in Hong Kong.
ECGDs concern with local
shareholders starts and finishes in respect of the latter's responsibility to repay the loan in their capacity as Hong Kong entities and not as members of international groups.
3. To do less than this would mean, in ECGD's.
i
view, that they would be ensuring local shareholders against political events in Hong Kong which (as they have repeatedly told Tunnel Company) is not their function. They areoffering Costains normal repeat
normal ECGD cover for this business.
4. The special position of the Hong Kong and Shanghai Bank in the event of takeover is known to ECGD. They point out that, under the guarantee, they would only pursue their claim against the Bank as a Hong Kong entity and, if it ceased to exist as such, in the manner and to the extent outlined in paragraph 2 above.
5.
ECGD inform us that 'procedural arrangements to secure creditors access to proceeds of the operation. of the tunnel" means neither more nor less than creation of a fund holding arrangement which will ensure the availability of proceeds, if the tunnel is profitable, to cover outstanding loan repayments. The precise form of this is a matter for negotiation but clearly it must be designed to prevent equity shareholders milking company whilst leaving fixed rate lenders to carry future risks. It would also offer shareholders chance of early loan repayment if they wished to do so. This is a normal financing arrangement when equity capital is relatively low in relation to fixed interest lending, as in this case. Obviously the fund arrangements would provide for fail return on equity capital whilst loan was outstanding.
6. Flease pass copy to Hannam.
(11516) Dd.392077 300m 10/68 G.W.B.Ltd. Gp.863
Please issue
W. 3. Carter
1
NOTHING TO BE WRITTEN IN THIS MARGIN
12/2/69
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