AVE ALSO EXAMINED CAREFULLY WHETHER THE PROPOSAL WOULD AFFE THE LIQUIDITY OF THE FUND AND SO ITS ABILITY TO MEET ITS LIABILITIES. WE ARE CONFIDENT THAT IT WOULD NOT.
7. IN E EARLY EIGHTIES WHEN APPROVAL WAS GIVEN FOR THE ACQUISION OF SHARES OF CERTAIN HONG KONG COMPANIES, IT WAS ARGUED THAT A PRUDENT LIMIT FOR EQUITY INVESTMENT WOULD BE 10 PCT OF THE NOTE AND COIN ISSUE LIABILITIES. THIS NO LONGER APPEARS TO BE APPROPRIATE IN PRESENT DAY CIRCUMSTANCES. AT THAT TIME, FISCAL RESERVES TRANSFERRED TO THE EXCHANGE FUND REPRESENTED ALMOST HALF OF THE TOTAL ASSETS OF THE FUND. SUBSTANTIAL BUDGET DEFICITS ALSO HAD TO BE FINANCED THROUGH THE DRAWDOWN OF SUCH RESERVES.
8. FISCAL RESERVES TRANSFERRED TO THE EXCHANGE FUND, AT JUST UNDER HKD70 BILLION AT THE END OF 1991, REPRESENTED ONLY ABOUT 30 PCT OF THE TOTAL ASSETS OF THE FUND OF ABOUT HKD233 BILLION. THERE MAY BE A NEED FOR SOME DRAWDOWN IN THE COMING YEARS. BUT EVEN IF THESE RESERVES WERE TO BE TOTALLY WITHDRAWN AT SHORT NOTICE, IN TERMS OF LIQUIDITY THE FUND WOULD HAVE NO DIFFICULTY IN MEETING THE WITHDRAWAL. IT IS, FURTHERMORE, HIGHLY UNLIKELY THAT THERE WOULD BE A SUBSTANTIAL CALL ON THE OTHER 70 PCT OF THE ASSETS OF THE FUND TO THE EXTENT THAT THIS COULD CAUSE ANY LIQUIDITY PROBLEM AND NECESSITATE A FORCED SALE OF THE 10 PCT EQUITY EXPOSURE.
9. YOU MAY WISH TO BE AWARE THAT OVER THE LAST THREE YEARS MOST OF THE HONG KONG COMPANY SHARES ACQUIRED IN 1981 AND 1983 HAVE BEEN SOLD, AND THAT THE FUND'S REMAINING EQUITY HOLDING, A 10 PCT STAKE IN UNLISTED HONG KONG AIR CARGO TERMINALS LIMITED, WILL ALSO BE SOLD IN THE NEAR FUTURE. IT WAS DECIDED IN 1986 TO SELL THESE EQUITY HOLDINGS AS AND WHEN THE OPPORTUNITY OFFERED BECAUSE THEY WERE ILLIQUID, AND THERE WAS THE POTENTIAL FOR CONFLICTS OF INTERESTS TO ARISE WHERE THE GOVERNMENT HAD BOTH POLICY RESPONSIBILITY FOR THE SERVICES PROVIDED BY THESE COMPANIES AND WAS A SIGNIFICANT SHAREHOLDER.
WILSON
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HMLNAN 4444
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