CONFIDENTIAL
Allen
9. Whilst there did not, at this stage, appear to be significant worries about physical progress, there were some worries about the PAA's finances. The BP has not been finalised; indeed, there is still no Finance Director, and the PAA was in the process of changing financial advisers. had two main financial concerns: first, how much debt financing he could attract; and, second, (as a pre-requisite for the first) certainty of revenues from mid 1997, even if the airport did not open exactly on time. He was hoping to finance the works for which the PAA was responsible from equity, official export credit, and bank debt in roughly equal proportions. Official export credit would have a key role. He had enough government provided equity to finance at least the first two years of construction, but availability of export credit would stretch this out and also give confidence to bank lenders he hoped to be able to tap them later, on the heels of successful syndications by the MTRC. Many key financial issues remained to be resolved including the cost to the PAA of land, prospective receipts from the sale of franchises, and certainty of revenues one suggestion was that Kai Tak revenues would accrue to the PAA (as equity) from a fixed date.
10.
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Others, notably Moss, took a much more pessimistic view of the PAA's financial prospects. More like 15% of the cost was potentially financeable from export credit; and the absence of any track record meant that normal bank financing would be out of the question. I suppose that one possibility which may eventually have to be faced is that a very high proportion of the total cost will turn out to have to be financed by HKG not necessarily a disaster in the light of para 5 above. But we should wait for the BP before jumping to any conclusions.
Export Credit and the Chinese "Guarantee"
11. It is, though, clear that availability of export credit will be the key factor in determining how much outside financing can be obtained. In this, HMG's own attitude will be crucial. Other credit agencies are unlikely to be forthcoming if we are not, still less bank lenders.
12.
On the question of China/Hong Kong risk, Moss pointed out that the MTRC could borrow at a premium of 40 basis points, whereas the Chinese government had to pay 160 basis points premium - a convincing illustration of bankers' recognition that Hong Kong risk was different and less.
and less. Moreover, these rates, and the credit ratings which underlay them, were for borrowing which straddled 1997. He was very keen to go to the market later this year with a large (say $1 billion) issue which would both establish Hong Kong's credit and get some money into the bank in advance of need. But, like everyone else, he was adamant that this would require some form of
CONFIDENTIAL
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