TNAG-0208-FCO40-244-Discussions-about-extension-to-Kai-Tak-airport-1969 — Page 157

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CONFIDENTIAL

We

we did approve a C.D.C. hotel project in Hong Kong last year, this approval was given very reluctantly and our reluctance was made know to the Corporation. would therefore not expect them to become involved in further Hong Kong projects in the near future. This view is reinforced by the fact that the Hong Kong Government do not appear to regard the project as important from the point of view of Hong Kong's development. Even in the unlikely event of new factors emerging which enabled us to overcome these objections, the C.D.C. as you know now pays 8 on its advances from the Government and so it could hardly on-lend for this kind of project at less than about 10%. In view of this I imagine that its participation would not be attractive to Hong Kong.

5. As regards the Asian Developmont Bank, as you are no doubt aware, Hong Kong has only just become a member. In the course of joining the Bank however, Hong Kong more than once expressed the intention or seeking no loan in the near future. We think it would be difficult now to persuade the Hong Kong Government to back- track on this, particularly to the extent of a loan that would exceed Hong Kong's nominal subscription to the Bank, which is U.S.8m. Other points which have a bearing on this question are as follows:

6.

(a) Any loan from the A.D.B. to Hong Kong would need to be guaranteed by

H.M.G.

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(b) The largest loans the Bank has granted to date have been for ø U S.10m.;

the Bank's current rate of interest on loans is not as high as in the London market but at 63% it is by no means 'soft' money.

(0) Although the Bank has ample funds, there is a long list of loan

applicants in the pipolino, the Bank's staff is somewhat inoxperienced and considerable delay in the processing of applications is inevitable.

(d) The Board of Directors, in consequence of events connected with Hong

Kong's accession to membership, tends to be suspicious of Britain's intentions in regard to her responsibilities towards Hong Kong (i.e.that we shall wish to 'wish' them onto the Bank) and these suspicions would undoubtedly be confirmed if we were to sponsor a loan request at this time.

We can

Having regard to the above considerations, it is our view that there is no possibility of the A.D.3. providing a loan of £ón. for the proposed extension to Kai Tak Airport and that the possibility of joint financing, with the Bank advancing some thing up to 50% of the proposed sum, would by no means be certain of success and could involve long-drawn-out and embarrassing negotiations. therefore see little point in initiating even informal enquiries at the Bank unless It could be on the basis of a reasonable assurance (which I have already said in this letter would not be forthcoming) that H.M.G. would take up 50% of a proposed joint loan and would charge the Bank's going rate of interest, namely 6%.

7. Copies of this letter have gone to Carter at the F.C.)., Coe at the Board of Trade, Downey in the Treasury and Turner at the Bank of England.

(C. C. RICKETTS)

CONFIDENTIAL