TNAG-1060-FCO40-1310-Mass-Transit-Railway-in-Hong-Kong-1981 — Page 120

PORT

CUARI

CREDITS

ANTEE

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28

EXPORT CREDITS GUARANTEE DEPARTMENT

Aldermanbury House

Aldermanbury

HK 173/1

No

9/6

AA Telephone: 01-606 6699

Ext 552

Your Ref: EFF K23

Our

London, EC2P 2EL

Telex: 883601

MyCuft f.i.

Please see especially

Ref: PD3 44-0/913715/31 Fara !!.

DEPARTM

M V Hawtin Esq

HM Treasury Parliament Street

LONDON SW1P 3AG

:) Brutal.

HONG KONG : MASS TRANSIT RAILWAY CORPORATION : ISLAND LINE

2.

Thank you for your letter of 27 May.

3 June 1981

see

I discussed the project with Norman Thompson of MTRC on the Friday morning of my visit to Hong Kong, 22 May. As expected, he was totally inflexible on the question of Hong Kong dollars and he stated categorically that British bids which did not include a fixed Hong Kong dollar price supported by Hong Kong dollar financing would be non-compliant and would be disqualified. I cannot see that there is any way in which Thompson will bend on this issue other than in a situation where neither the UK contenders nor any of our overseas competitors were able to meet his terms. He had just returned from Tokyo where he had been 37) impressed by Japan's continuing interest in and commitment to the Hong Kong market; he was confident that the Japanese competitors for the business would submit fully compliant bids quoting fixed Hong Kong dollar prices with no liability falling on MTRC in respect of exchange rate movements. He told us that all the contracts with Japanese contractors in respect of the earlier stages of the Mass Transit scheme had been expressed and payable in Hong Kong dollars with the Japanese taking the exchange risk. Although he did not know how the Japanese coped with the exchange risk in every case, he assumed they laid off the risk commercially, and he mentioned one case where he knew that the Japanese had raised a loan in Swiss francs to cover the contractual amount; the Swiss francs had been borrowed at 22%, immediately converted into yen which were put on deposit at 82%, the profit being used to build an exchange reserve fund to mitigate any losses which might arise on the conversion of Hong Kong dollar payments. He also mentioned that one earlier contract awarded to a French contractor had also provided for Hong Kong dollar pricing and financing. Apart from one small contract with a German company providing for payment and funding in US dollars, the only contracts departing from the rule of fixed Hong Kong dollar pricing/ funding were those placed in the UK, providing for US dollar contract prices and Hong Kong dollar funding; Thompson is determined that there should be no exceptions for the Island Line.

3. I informed Thompson that we had it in mind to limit our commitment on Hong Kong dollar financing to the E & M contracts and raised your suggestion for a currency switch arrangement. Thompson was not prepared to discuss this, which he regards as unacceptable and non-negotiable.

4.

UK.

Thompson would genuinely like to be able to place more contracts in the He considered it short-sighted of the UK to concentrate on the E & M contracts; the bids would be judged strictly on their merits in competition with

1.

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