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CONFIDENTIAL
would like to see HMG as an equity holder in Guangdong through a stake in HKNIC
but we would resist this and hope either that sufficient private sector investors
would come forward, or that the 10% capitalisation might be reduced to a more
manageable sum (the balance between the £85m - $160m envisaged offshore equity
and the UK supply involvement of circa £250m is disproportionate), or that the
Chinese might be persuaded that their own liabilities (as equity holders themselves
and to others) are against their interests;
the Bank of China Guarantee (qv) for the ECGD credit. The Chinese starting position
is that they should only offer guarantees in preportion to their equity stake.
No recommendations are put forward on this question as these will emerge when discussions
with the Chinese and other participants have taken place.
As this section is not central to the consideration of options it might take the term
of a background note7.
Bank of China Guarantee
When dealing with newly established and under-capitalised borrowers ECGD require that
the loans which they support should be backed by guarantees from suitably funded
organisations.
In the case of a State Trading country such as China this effectively means that they
will require the Bank of China to act as guarantor for the project. The attitude of
the Chinese is however that since the project is a joint venture between the Guangdong
Power Company and Hong Kong Nuclear Investment Company they should only provide guarantees
in proportion to their equity involvement (ie. 60% of $400m - see Equity). ECGD would
not be content with a 60% guarantee and would require backing in respect of the 40%
balance. Although willing to consider guarantees for this balance from suitable Western
interests they are sceptical as to whether Western guarantees would be forthcoming
particularly as the project is in the People's Republic of China the political risk is
entirely Chinese.
CONFIDENTIAL
No comments yet.
Private notes are available after approval.