TNAG-0207-FCO40-243-Construction-of-a-cross-harbour-tunnel--under-Hong-Kong-harb-1969 — Page 39

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Background Note

Agreement in principle has been reached between the Cross-Harbour Tunnel Co. Ltd. of Hong Kong and Lloyds Bank Ltd. for the financing of the construction of the proposed four-lane tunnel serving Hong Kong island and the city of Kowloon. Lloyds Bank have agreed to provide a loan for up to £14 million (about 75% of the total cost) repayable with 5% p.a. interest, over 7 years from completion of the tunnel, estimated to take 3 years. The loan is to be guaranteed unconditionally by the Export Credits Guarantee Department.

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The consulting engineers for the project are British Scott, Wilson, Kirkpatrick & Partners, and Freeman, Fox & Partners, and it is hoped that a contract for construction of the tunnel will be placed in May with Costains, with whom the Tunnel Company are now in detailed negotiation.

Apart from the Hong-Kong Severnment

The Funnel Company is limited company in which the Hong Kong Government, subject to approval by the Legislative Council, will take a shareholding.) the remaining shareholders are:-

Wheelock Marden & Co. Ltd.;

Hutchison International Ltd.;

The Hong Kong & Shanghai Banking Corporation;

Kwon Wan Ltd.;

Sir Elly Kadoorie Succs.

Negotiations for the financing of the tunnel have been protracted for a variety of reasons, mainly commercial. On the E.C.G.D. side, in order to satisfy normal underwriting criteria, we have had to press for adequate security for the guaranteed long-term loan, bearing in mind that the shareholders are only putting up 25% of the capital cost of the project. In the negotiations leading up to the agreement in principle on finance the shareholders finally agreed to guarantee loan repayments in proportion to their shareholdings, and other security including a floating charge on the company's assets has also been agreed.

The loan arrangements are purely commercial, and the E.C.G.D. guarantee is being given in accordance with normal E.C.G.D. requirements. The business has been won against international competition and disclosure of the arrangements in detail might prejudice the further commercial negotiations currently in progress.