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DRAFT TELEGRAM
woonlah The shar
A.
Your telegram 127 of 8th February. Hong Kong Tunnel.
We are informed by E.C.G.D. as follows! -
1.
2.
A
i
55/6
They find it difficult to understand attitude
of Tunnel Company shareholders to almost every
offer they make. However they try to put it
the Tunnel Company revert to "political risk"
in a manner which implies that E.C.G.D. should
insure them against political events in Hong Kong.
E. C.G.D. have told them repeatedly that this is
not their function and that they are offering
Costains normal repeat normal E.C.G.D. cover for
this business. E. C. G.D. concern with local share-
holders starts and finishes in respect of their
responsibility to repay the loan in their capacity
as Hong Kong entities and not as members of
international groups.
Against this background E. C.G.D. inform us:-
(a)X "Procedural arrangements to secure creditors
access to proceeds of the operation of the
tunnel" means neither more nor less thar:
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
last.
fixed interest lending, as in thig. Obviously the
fund arrangements would provide for fair return
on equity capital whilst loan was outstanding.X
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