TNAG-0770-FCO40-974-Construction-of-underground-railway-system-in-Hong-Kong-1978 — Page 227

EXPORT

CREDITS

ARANTEE DEPARTME

Miss J Kelley HM Treasury Parliament Street London SW1P 3AG

EXPORT CREDITS

GUARANTEE DEPARTMENT GUAR 01-606 6699 Ext 552

RECEIVED IN REGISTRY HO. 43

· 6 FEB 1978

DK OFFICER

: REGISTRY

PA

Action Taker

INDEX

Aldermanbury House

Aldermanbury

London, EC2P 2EL

Hkk 173/1.

DECK, OFFICER

PA ·

INDEX

378

FEGISTRY

Action faken

6 February 1978

nd Dean Jour,

éw

No

HONG KONG MASS TRANSIT RAILWAY CORPORATION

1

R. Copyla HKD pl

Nowder..

Soe

Over the past 12 months we have had numerous conversations with lenders, MTRC and MetCam about the terms of our support for the Mass Transit's Phase II development for which invitations to tender are due to be invited in March. We have not made any formal submissions to EGC because we have only very toutative ideas as to what the UK participation in Phase II of the project might be. Wo have now been asked urgently to quote for the support of a contract value 125 for 70 MetCan railcars which wore an option in MetCam's original contract for 140 rail-

MetCam have already been offered cost escalation cover and tender-to-contract cover based on a US dollar contract price and we are now told that the MTRC require financing in Hong Kong dollars if the option is to be taken up.

car's.

2 Fhase I of the Mass Transit was won back from the Japanese and we supported sterling finance for £120m repayable over 10 years for the civil engineering and 12 years for the electrical and mechanical equipment from commissioning which was estimated for the end of 1979. Capitalisation of interest was also agreed. Financing was 85% of the UK element at interest rates of 8% and 8%, the latter for the civil engineering contracts. MTRC's loan obligations are guaranteed by the liong Kong Government and we shall require similar security for any additional commitments despite MTRC's efforts to persuade us that this is no longer necessary.

3

In our preliminary discussions with the MTRC direct we have made it pinin that there can be no question of our exceeding the most favourable terms permitted by the Consensus for an Intermediate market, viz 85% financing over 8 years at en interest rate of 74%, and that financing would only be available in either US dollars or Deutschemarks. When I was pressed to consider Hong Kong dollars I said that with the very large commitment being negotiated in this currency for the Power Station we were not prepared to add to our Hong Kong dollar commitment. MTRC however knowing that the Power Station contract is to be financed in US dollars have re-opened the question of Hong Kong dollar finance for the option contract. Through Lazards, who will be acting as lenders for any loan set up to finance tho option, they have obtained two quotations for a Hong Kong dollar loan. The first of these is from the Hong Kong and Shanghai Bank at a spread of 1% over Best Lending Rate. The second is from the Chartered Bank at 1% over Best Lending Rate. Both banks would be willing to fund the full amount required, 220m for the full period of the loan, 11 years (24 + 81), The Chartered Bank offer envisages

draw down over the full 24 year pre-credit period at a pre-arranged rate of exchange of HK$4.65 against the US thus avoiding the need for the special loan arrangements to cover immediate draw down envisaged for the Power Station loan. The rate quoted compares with the spot rate on 2 February of HK$4.61.

1