TNAG-0423-FCO40-469-Construction-of-an-underground-railway-system-in-Hong-Kong-1973 — Page 76

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b.

iv.

√.

vi.

We have confirmed that the German-French- British bid remains on a stage by stage basis. Morgan Grenfell however tell us that Hermes have assured the Deutche Bank that they will match others both on this and capitalisation of interest;

it now appears that the first four stages will not in fact be taken in serial form

(stage 1, 2 etc). On this basis the period between completion of the first and last of the four stages will be no more than 18 months;

the calculation made by Bank of England in March in arriving at their estimate of preference involved in this project had in fact assumed that repayment would not commence until completion of the first four stages.

In the light of this evidence I hope you will agree that our acceptance of Lazards proposition was justified.

Capitalisation of interest:

I have committed us to no more than examination of the possibility of agreeing to some capitalisation of interest at the request of the Hong Kong Government. Their record of the first day's meeting on this point reads as follows;

"The ECGD representative (Mr Cotterill) indicated that ECGD had as yet received no evidence that a competitor had offered capitalisation of interest but that ECGD would be prepared to consider matching competition in this regard. The Steering Group pointed out that while it had not received absolutely unequivocal offers from any other consortium it had been given quite strong indications that capitalisation of interest on export credits would be a distinct probability. Mr Cotterill undertook to consider this and to provide a definitive answer within a week. He noted that by capitalisation of interest the Group meant the accumulation of interest on export credits (including interest on interest at the same rate as interest on the principal sum) over the full grace period.

At the final plenary meeting in Hong Kong the Financial Secretary said that he had now received from one of our competitors (possibly the Japanese though he did not identify which) a written statement of willingness to capitalise interest on the basis requested (i.e. precompletion interest to be repaid on the same terms.