TNAG-0771-FCO40-975-Construction-of-underground-railway-system-in-Hong-Kong-1978 — Page 9

60,

V

HKK 17.3/1

RECEIVED IN REGIStar No. 51

- 5 DEC 1978

PP B T C HONG KONG

INDEX

12

GRS350

RU TRY Action Ten

ECG) secur to

boom bending over backwards

to help whi

Funger

Crossand

Hivi contind

वह the thunder

NO DISTR

_tHCG 12.

TREDEZT

RESTRICTED

FM E C G D 041606Z DEC 78

TO PRIORITY B T C HONG KONG

TELEGRAM NUMBER EXCED 856 OF 4 DECEMBER.

M T R C: METCAM: RAILCARS.

1. AS YOU NO DOUBT HAVE ALREADY BEEN ADVISED TONSY SANSOME RETURNS TO HONG KONG ON WEDNESDAY NEXT 6TH DECEMBER. DAVID GEMMILL WILL NO DOUBT BE SUPPORTING HIM IN ALL FINANCIAL CONSIDERATIONS IN HIS NEGOTIATIONS WITH M T R C AND WE HOPE THAT HE WILL BE ABLE TO MAKE THE MAXIMUM USE OF THE FURTHER IMPROVEMENTS THAT HAVE BEEN MADE IN OUR FINANCIAL OFFER TO M T R C ABOUT WHICH I HAVE WRITTEN YOU SEPARATELY TODAY. MUCH OF WHAT WE HAVE DONE IS NOT ACTUALLY REFLECTED IN THE TERMS OF THE LOAN BUT IT SHOULD ENABLE METCAM TO HAVE MADE SUBSTANTIAL REDUCTIONS IN THEIR CONTRACT PRICE.

2. IN CONSIDERING WHAT WE HAVE DONE IN RELATIONS TO WHAT WE UNDERSTAND TO BE THE JAPANESE POSITION WE BELIEVE WE MAY HAVE THE EDGE OVER THE JAPANESE IN THE STARTING DATE FOR CREDIT WITH FIRST PAYMENT SIX MONTHS AFTER THE ESTIMATED COMPLETION OF THE PROJECT IN DECEMBER 1982 AGAINST THE PROBABLE JAP POSITION OF REPAYMENTS STARTING FROM MEAN DATE OF DELIVERY.

3. WE HAVE AGREED TO CAPITALISATION OF PRE-COMMISSIONING INTEREST

WHICH IN ITSELF IS OF CONSIDERABLE BENEFIT TO MTR C'S CASH FLOW AND OF EVEN GREATER BENEFIT COMPARED TO THE JAPANESE POSITION IF THEIR STARTING DATE FOR REPAYMENTS IS EARLIER.

4. WE HAVE AGREED TO PROVIDE TENDER TO CONTRACT COVER FOR THE OPTION PART OF THE CONTRACT ON THE BASIS THAT A FIRM CONTRACT WILL BE PLACED FOR 220 CARS WITH MTR HAVING THE OPTION TO CANCEL 70 UP TO JUNE 1981. THIS WOULD PERMIT NOT ONLY FULL ADVANTAGE TO BE TAKEN OF THE DISCOUNTS PROVIDED BY EXISTING FORWARD EXCHANGE RATES BUT FOR METCAM TO HAVE FULL ADVANTAGE OF THE COST ESCALATION SCHEME. THESE BENEFITS MUST BE OF CONSIDERABLE VALUE TO MTRC AND HOPEFULLY AN OFFER CAN BE MADE WHICH THEY CANNOT REFUSE TO ACCEPT. WE HAVE AGREED THAT PREMIUM FOR BUYER CREDIT SUPPORT OF THE 70 RAILCARS AND ALSO COST ESCALATION PREMIUM IS PAYABLE ONLY 10% AT THE OUTSET AND THE BALANCE WHEN THE OPTION TO CANCEL HAS EXPIRED. FOR TENDER TO CONTRACT COVER IN RELATION TO THE OPTION NO PREMIUM WILL BE PAYABLE UNTIL THE OPTION PERIOD HAS EXPIRED OR THE BUYER HAS CONFIRMED THE 70 CAR CONTRACT. THUS THE FIRMING UP OF THE BOT PRICE AND FINANCE AT THE OUTSET COULD BE ACHIEVED FOR M T R C WITH A MINIMAL CANCELLATION CHARGE SHOULD THEY EXERCISE THEIR OPTION TO CANCEL THE 70 RAILCARS. WE HAVE ALSO AGREED THAT IF HONG KONG DOLLARS ARE NOT AVAILABLE NEXT FEBRUARY WE WILL FINANCE IN US DOLLARS WITH THE LOANS CONTAINING A LENDERS OPTION TO SWITCH INTO HONG KONG DOLLARS WHEN IT IS FEASIBLE AND ACCEPTABLE TO DO SO. THESE ARE SUBSTANTIAL CONCESSIONS WHICH HAVE BEEN MADE IN THE HOPE THAT THE CONTRACT FOR THE FULL 229 CARS CAN BE CLINCHED, I CANNOT EMPHASISE TOO STRONGLY THAT THE TENDER TO CONTRACT COVER WITH 33 MONTHS VALIDITY IS UNIQUE AND IS UNLIKELY TO BE REPEATED AGAIN EITHER IN HONG KONG OR ANYWHERE ELSE. PLEASE ADVISE DAVID GEMMILL ACCORDINGLY.

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