M V Hawtin Esq
8.
(b)
it is made perfectly clear to lenders and contractors that neither TTC cover nor any other form of support will be available from ECGD to cover the Hong Kong dollar exchange rate risk;
(c) only banks of the very highest standing would be admitted to any Hong Kong dollar syndication;
(a) we tell both MTRC and the main Hong Kong dollar deposit banks now that we would only be prepared to accept spreads no worse than those recently agreed for Castle Peak 'B' viz 2% for the first 5 years and 1% for the following 8 years. Any requirement by the banks for us to improve on these spreads would only be agreed on the strict condition that the fixed lending rate be increased pro rata so that, in effect, MTRC would have to carry any additional cost. The spreads quoted although marginally higher than those we hope to negotiate over the next 12 months for US dollars are in our view an acceptable basis on which to proceed into further support for Hong Kong dollar lending.
Thompson also pressed us to reconsider supporting Hong Kong dollar finance for the consultancy contracts. He said that all previous consultancy contracts had been payable in Hong Kong dollars but generally on a cash basis. He was now insisting on credit and would require this to be paid and financed in Hong Kong dollars. British consultants were thus showing more enterprise and flexibility than British contractors in their commitment to the Hong Kong market. I undertook to consult Departments on this issue also.
9. How UK contractors propose to accommodate the exchange risk arising under fixed Hong Kong dollar contract prices remains to be seen, but we have made it clear to all that support from ECGD will not be forthcoming. The bankers will no doubt come up with suggestions at a later stage, and it is possible that some UK contractors with a substantial commitment in the market would be prepared to live with the risk.
10. As to Met-Cam we are looking at their latest figures but they will be supported by Laird Group guarantees and we would remind you that the loan obligations of MTRC will be unconditionally guaranteed by the Hong Kong Government and hopefully this makes loan default a very rare possibility.
11. CPD are working on a country paper which I hope they will be able to table at an early date, although they may wish to submit further observations later in the year if they proceed with a market tour tentatively planned for the Autumn. In the meantime we shall exercise delay where possible in dealing with other cases coming forward for Section 2 consideration, whilst letting Section 1 cases go forward in the normal way. Section 1 commitments amount to £265m under a RML of £500m. The only significant project application with us at present relates to the construction of the Hongkong Bank's new headquarters building. BSC have approached us for support for the supply and erection of the structural steelwork valued at about £25m £30m and two or three other applications can be expected for other parts of the project perhaps to a total value of about £60m - £80m. indicating our willingness to support 5 years credit with sterling or US dollar (but not HK dollar) finance. In addition to this project a further application for Rolls Royce engines for Cathay Pacific valued about £16m has just been received and it is possible that further ships cases will also come forward in the near future
We are
Birch
cc R T Kemp
MG Stephens ECGD
GE Breach
MS Bremner
DRC Durie
PEP
GG Leader
ODA
TJH Downing
30E
M Haworth
MOD
GM Gowlland R Mathrani
FCO
J Priston
DOT
DOT
J Woolmer
DOT
3.
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