J. HENRY SCHRODER WAGG & CO. LIMITED
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of electricity. In return it is not unreasonable therefore to expect the Chinese to guarantee the loans. The Bank of China might well argue that in the event that China Light did not pay for the electricity, their guarantee would be discharged, in which case the risk of the lenders would be the China Light group of companies who by that time would be fully extended with their commitments to the 'B' Station. ECGD is likely to resist this argument.
At the outset we should therefore seek full unconditional guarantee from the Bank of China. I doubt whether ECGD would accept less. Certainly the commercial lenders would expect
a full guarantee.
Availability of loans
In view of the very small current exposure of the banks and ECGD to PRC, I would not expect much difficulty in syndicating the loans proposed, provided that an unconditional guarantee was given by the Bank of China. Similarly I would expect ECGD to agree to guarantee the banks for the export credit loans of 85% of the U.K. content, of contracts placed.
Currency
To date the Bank of China have insisted on loans being denominated in US dollars. It is proposed that electricity sold to China Light will be paid for in US dollars.
Export credit terms
Provided the case is underwritten by ECGD before there is a further change to the International Consensus guidelines the interest rate will be fixed at 7%. The present terms for PRC in respect of capital goods over US$ 100 million are 7% interest with equal semi-annual repayments over 10 years from delivery/commissioning. The consensus guidelines however are not binding on power station contracts and so ECGD is free to go up to 12 years for conventional power stations and even further for nuclear power stations. ECGD previously agreed to a 15 years loan for a nuclear power station in South Korea when matching terms offered by Eximbank of USA. The present cash flows indicate the need for 15 year repayment
terms.
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