TNAG-1060-FCO40-1310-Mass-Transit-Railway-in-Hong-Kong-1981 — Page 113

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No problems were foreseen about provision by the Hong Kong banks of funds to finance UK involve- ment for disbursement over the period 1982-86.

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u pointed out that once the funds had been drawn down the lending banks were effectively committed for the whole period of the loan, and it was most unlikely that they would fall down on an obligation to the Hong Kong Government. ECGD had no take-out obligation and the funds were not subject to 6 month rollover as in the case of funding.arrangements for US dollar loans. You argued that ECGD's potential liability to meet increased IMU charges would be contained by relating make-up to the Hong Kong banks best lending rate, rather than to the cost of funds. Under the arrangements proposed in paragraph 7(d) in your letter, any increase in the margin above the maximum proposed would have to be found by MTRC.

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In the light of this information, we are prepared to agree to Hong Kong dollar financing for these contracts, on the basis proposed in paragraph 7 of your letter and on the understanding that the maximum loan supported by ECGD is not expected to exceed £150-200 million. 5. There are, however, two contingencies which we would like you to consider further:-

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the risk of non-availability of Hong Kong dollars at the time of draw down. We suggest it would be prudent to ensure that the documentation dissociates MTRC's commitment to make payments under the supply contracts from the banks' commitments to provide the Hong Kong dollar facility (ie. the commitment for payments to the British exporter would be independent of drawings under the loan facility, with MTRC taking the risk on the banks at the time of the initial draw down).

Non-availability of Hong Kong dollars in a default situation where ECGD has to meet claims. We suggest you should try to include in the agreement some provision which would limit your commitment to provide Hong Kong dollars in these circumstances and allow you to substitute some other currency.

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Tender to Contract 6. You mentioned on the telephone that the question of TTC cover had been raised by one of the benkirs present at this week's meeting. had made it clear that there was no question of providing TTC on the Hong Kong dollar risk, but your view was that TTC cover would have to be agreed for a contract expressed in US dollars or on the sterling/US dollar leg of a Hong Kong dollar contract. (I take it that a US dollar contract is a very unlikely possibility, given the categorical state- ment reported in your letter that British bids which did not include a fixed Hong Kong dollar price would be non-compliant.)

7. Since we spoke, Gerry Fisher has been in touch with Ernest Whitear, and an application for TTC cover*in connection with a possible negotiated contract for rail cars has been agreed. But, bearing in mind the un- certainties about the future of the TTC scheme, we trust you will take a suitably cautious line if there is pressure to give advance commit- ments that TTC will be available. If the question is raised by suppliers, we suggest you should give a non-committal response, unless they are in a position to make a formal application and pay the premium.

*from Metro Cammell Ltd

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