TNAG-0772-FCO40-976-Modernisation-and-electrification-of-the-Kowloon-Canton-Rail-1978 — Page 46

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FM BTC HONG KONG 130750Z NOV 78

TO IMMEDIATE DO T

TELEGRAM NUMBER CREDA 339 OF 13 NOVEMBER

на/нкад

HOITRED

AND TO IMMEDIATE DO I (FOR DELL AND OLDHAM)

PERSONAL FOR ROYCE, ED DIVISION.

MY CREDA 338: KOWLOON-CANTON RAILWAY.

I HAVE NOW HAD AN OPPORTUNITY TO DISCUSS THE POUNDS STERLING

4 MILLION GAP WITH LIPPITT (DOI), BIRCH (ECGD) AND GEMMILL (LAZARDS) WHO ARE ALL IN HONG KONG FOR THE CHINA LIGHT AND POWER

NEGOTIATIONS.

2. SINCE IT IS STILL UNCERTAIN WHETHER OUR EFFORTS TO PROVIDE FURTHER SUPPORT TO THE LAIRD GROUP WILL YIELD THE 8 MILLION POUNDS MINIMUM PRICE REDUCTION, WE WOULD LIKE TO BE SATISFIED THAT THERE REALLY 19 AN INSUPERABLE BARRIER TO PREVENT US FROM MAKING USE OF ECGD'S BUYER CREDIT SYSTEM AS A SOURCE

OF FUNDS.

3. ECGD HAS ALREADY AGREED TO SUPPORT THIS CONTRACT WITH ITS

NORMAL FACILITIES WHICH INCLUDE A FIXED RATE OF INTEREST WELL BELOW CURRENT RATES IN THE COMMERCIAL MONEY MARKETS. BY MAKING USE OF THIS DIFFERENTIAL IN THE MANNER SUGGESTED BY LAZARDS IT SEEMS THAT WE SHOULD BE ABLE TO FIND A SUBSTANTIAL SUM OF MONEY WITHOUT ANY SIGNIFICANT EXPENDITURE BY GOVERNMENT DEPARTMENTS BEYOND THAT WHICH THEY WOULD IN ANY EVENT EXPECT TO INCUR IN SUPPORTING THE UK EFFORT TO WIN THIS CONTRACT IF THE TENDER HAD NOT, ALMOST INCIDENTALLY, CALLED FOR BIDS ON

A CASH BASIS.

4. YOUR CREDA 182 REPORTED LAZARDS PROPOSAL AS UNACCEPTABLE ON

GROUNDS OF VIRES BUT DISCUSSION HERE WITH BIRCH AND GEMMILL SUGGESTS THAT THERE SHOULD BE A WAY ROUND THE DIFFICULTY. THE FOLLOWING PROPOSAL IS PUT FORWARD AS A POSSIBLE SOLUTION ALTHOUGH

WE DO NOT PRETEND THAT IT MEETS ALL THE FINER POINTS. I WOULD, NEVERTHELESS, HOPE THAT IT WILL RECEIVE PROPER AND CONSTRUCTIVE CONSIDERATION AND IS ADAPTED AS NECESSARY TO MAKE IT WORK

EFFECTIVELY,

5. AT PRESENT, GEC TRACTION IS A MAJOR SUB-CONTRACTOR OF MET CAM.

WE PROPOSE THAT GEC (HK) LTD BE PLACED BETWEEN GEC TRACTION AND MET CAM SO THAT GEC (HK) WOULD BUY FROM GEC TRACTION AND ON-SELL

TO MET CAM. GEC (HK) WOULD BE GIVEN A BUYER CREDIT FACILITY

BY LAZARDS IN US DOLLARS OR STERLING FOR A PERIOD NOT EXCEEDING

THAT ALREADY OFFERED BY ECGD. THE LOAN WOULD BE DRAWN DOWN IN FULL

AT THE OUTSET AND THE PROCEEDS HELD BY LAZARDS ON TRUST IN PRIME FIXED RATE DEPOSITS MATURING ON THE LOAN REPAYMENT DATE (OR DATES). FULL LOAN DRAW DOWN AT OUTSET IS ESSENTIAL IN ORDER TO QUANTIFY AND SECURE THE FULL INTEREST DIFFERENTIAL THAT WILL ACCRUE BETWEEN THE FIXED RATE BUYER CREDIT AND THE INTEREST PAYABLE ON THE PRIME COMMERCIAL PAPER. THIS DIFFERENTIAL WILL ACCRUE TO GEC (HK) AS BORROWER BUT WILL BE PASSED BACK TO GEC

TRACTION AND THEREFORE TO MET CAM AS MAIN CONTRACTOR.

6. WHEN MET CAM RECEIVES CASH PAYMENTS FROM THE PWD IN ACCORDANCE

WITH THE TERMS OF CONTRACT ALREADY SUBMITTED, IT WILL MAKE APYMENT TO GEC (HK) IN EXACTLY THE SAME WAY AS IT WOULD TO ANY OTHER SUB-CONTRACTOR. GEC (HK) WILL ARRANGE FOR THESE PAYMENTS TO BE PASSED BACK TO GEC TRACTION IN SATISFACTION OF ITS OWN

PAYMENT OBLIGATIONS.

7. THE EFFECT OF ALL THIS WILL BE IDENTICAL TO THE SITUATION WHICH WOULD HAVE ARISEN IF GEC (HK) DID IN FACT WISH TO BUY FROM GEC TRACTION EXCEPT THAT THE LOAN WILL BE DRAWN IN ITS ENTIRETY AT THE OUTSET AND THE BENEFIT OF THE RESULTING CASH FLOW

WILL BE PASSED BACK TO MET CAM.

MARCH

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