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CONFIDENTIAL
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When the Secretary saw Y K Pao's son-in-law,
Dr Sohmen, who will be a member of the mission, a plan was put forward for a bareboat chartering deal whereby Pao provided front-end finance (to the tune of $ 500 million) to buy ships from UK yards. They would then
be leased to a "government organisation" who would
charter them out to BSC, BP or a similar concern. The idea is that Mr Pao is able to borrow money on the Asian market (he is a director of the Hong Kong Bank) at cheaper
rates that on the Eurodollar market; this would enable
him to pay slightly higher than Japanese prices for ships. However, the UK would have to provide him with a guaranteed charter income sufficient to meet the cost of financing the building of the ship. The charter rates may therefore have to be subsidised and any risk on fluctuating freight rates borne by the UK. Nevertheless, it is possible that subsidising a charter might be less expensive than a straightforward building subsidy.
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Mr Pao also has suggested a scheme whereby groups such as BP would take on 2-3 year charters and the ships would then revert back to him. Presumably the basis of this scheme would be that ir Pao could buy when ship prices are low, secure a guaranteed charter for the period when freight rates were depressed, and then put the ships on the market when charter rates improved.
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Mr Pao's main rival in Hong Kong, C Y Tung, has also announced an interest in arranging bareboat charter deals. CH Tung, his son-in-law, will be on the mission.
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Whether the proposals involve chartering or buying, it is almost inevitable that some form of subsidy will
be involved, either on the cost of the ship, or to the charter rate, or both. In addition, a government guarantee with regard to the charter income may be sought.
CONFIDENTIAL
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