TNAG-0770-FCO40-974-Construction-of-underground-railway-system-in-Hong-Kong-1978 — Page 257

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reasonable, as interest rates are now probably at their lowest point of the cycle.

(f) The Government's Equity and Increased Contingent

Liabilities

31

Apart from equity subscriptions for Crown Land premia and rates the Corporation has suggested a further injection of $500 million in Government equity. The alternative would be to ask the Corporation to increase its borrowings in respect of the Tsuen Wan extension alone from $4, 300 million to $5, 000 million (an increase of $700 million, being $500 million plus further loans to pay the interest).

32

The case for the Government participating in this way is not convincing. The present high gearing has not inhibited the Cor- poration from raising funds. And, the effect on the market of an additional $500 million of equity would be negligible. It is therefore proposed that the Government should not invest a further $500 million in cash, and that it should limit its equity contribution to the Tsuen Wan extension to roughly $170 million by way of Crown Land premia and $11 million for rates. A revised cash flow table taking account of this proposal is at Annex D.

33

Assuming a Government contribution of $181 million, the Corporation's additional borrowings would peak in 1982 at $4, 900 million. Only about 50% of this should be subject to Government guarantee, as the Corporation has assumed that additional residual borrowings (including HK dollar bond issues but perhaps excluding foreign currency bond issues) would not require the guarantee of the Government. The Corporation may also be able to raise new export credit finance without Government guarantee.

34

The Government's present fiscal reserves are fully com- mitted to cover possible short term difficulties, the financing of seasonal deficits, and to meet existing liabilities. The reserves would have to be increased above their present level if the Govern- ment guarantees on MTR loans are raised as suggested in para- graph 33.

C.S. 166

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