Minutes of the proceedings of the Meeting held on
31 May 1996 at 2:30 p.m. in the Legislative Council Chamber
Members Present :
Dr Hon YEUNG Sum (Chairman)
Hon Mrs Elizabeth WONG CHIEN Chi-lien, CBE, ISO, JP (Deputy Chairman)
Hon Martin LEE Chu-ming, QC, JP
Hon SZETO Wah
Hon Edward HO Sing-tin, OBE, JP
Hon Ronald ARCULLI, OBE, JP
Hon Mrs Miriam LAU Kin-yee, OBE, JP
Hon Albert CHAN Wai-yip
Hon CHEUNG Man-kwong
Hon CHIM Pui-chung
Hon Michael HO Mun-ka
Dr Hon HUANG Chen-ya, MBE
Hon LEE Wing-tat
Hon Eric LI Ka-cheung, JP
Hon Fred LI Wah-ming
Hon Henry TANG Ying-yen, JP
Hon James TO Kun-sun
Dr Hon Philip WONG Yu-hong
Hon Howard YOUNG, JP
Hon Zachary WONG Wai-yin
Hon James TIEN Pei-chun, OBE, JP
Hon LEE Cheuk-yan
Hon CHAN Kam-lam
Hon CHAN Wing-chan
Hon CHAN Yuen-han
Hon Andrew CHENG Kar-foo
Hon CHENG Yiu-tong
Dr Hon Anthony CHEUNG Bing-leung
Hon CHEUNG Hon-chung
Hon CHOY Kan-pui, JP
Hon David CHU Yu-lin
Hon Albert HO Chun-yan
Hon IP Kwok-him
Hon Ambrose LAU Hon-chuen, JP
Dr Hon LAW Cheung-kwok
Hon LEE Kai-ming
Hon LEUNG Yiu-chung
Hon Bruce LIU Sing-lee
Hon LO Suk-ching
Hon MOK Ying-fan
Hon Margaret NG
Hon NGAN Kam-chuen
Hon SIN Chung-kai
Hon TSANG Kin-shing
Hon Lawrence YUM Sin-ling
Members Absent :
Hon Allen LEE Peng-fei, CBE, JP
Hon Mrs Selina CHOW LIANG Shuk-yee, OBE, JP
Dr Hon David LI Kwok-po, OBE, LLD, JP
Hon NGAI Shiu-kit, OBE, JP
Hon LAU Wong-fat, OBE, JP
Dr Hon Edward LEONG Che-hung, OBE, JP
Hon Frederick FUNG Kin-kee
Hon Emily LAU Wai-hing
Dr Hon Samuel WONG Ping-wai, MBE, FEng, JP
Hon Christine LOH Kung-wai
Hon Paul CHENG Ming-fun
Hon LAU Chin-shek
Hon LAW Chi-kwong
Dr Hon John TSE Wing-ling
Public Officers Attending :
Miss Denise YUE, JP
Secretary for Trade and Industry
Mr Patrick CHUNG, JP
EDI Co-ordinator of Trade and Industry Branch
Mr M J T ROWSE, JP
Deputy Secretary for the Treasury(2)|
In Attendance :
Mr K C KWONG, JP
Secretary for the Treasury
Mr Kevin HO, JP
Deputy Secretary for the Treasury(1)
Mrs Lilian WONG
Principal Executive Officer (General), Finance Branch
Miss Pauline NG
Clerk to the Finance Committee
Mrs Constance LI
Chief Assistant Secretary (Finance Committee)
Mr Andy LAU
Senior Assistant Secretary (Finance Committee)|
Item No. 1 - FCR(96-97)17
CAPITAL INVESTMENT FUND
HEAD 971 - TRADELINK ELECTRONIC DOCUMENT SERVICES LIMITED
Subhead 101 Purchase of equity in Tradelink Electronic Document Services Limited
New Subhead Loan for Tradelink Electronic Document Services Limited
The Chairman advised members that the proposal had been discussed at the Finance Committee (FC) meeting on 24 May 1996 but withdrawn by the Administration in view of members queries and comments. The Administration had subsequently provided supplementary information to members, and the item was now re-submitted to FC for consideration. As Tradelink would need new working capital by June 1996 to continue operating, the Committee would need to take a decision on Governments proposal at this meeting.
2. In response to members queries on how far Hong Kong would benefit from providing continued financial support to Tradelink, the Secretary for Trade and Industry (STI) stressed that if Hong Kong was to maintain its position as one of the leading trading centres in the world, the business community of Hong Kong could not afford to further delay the use of electronic data interchange (EDI). There had been strong indications from the United States, Hong Kongs major trading partner, that future trading documents including the restrained textiles export licence would have to be cleared by EDI. It had now been the world trend that business was conducted electronically, and some major procuring departments of overseas governments had made it a condition that all tenders should be submitted through EDI. In this respect, Hong Kong could not afford to fall behind its competitors, such as Singapore, in the use of EDI.
3. Replying to a member about the objection raised by Mr Tomlin of the Trade Facilitation Council (TFC) about the proposal, STI advised that TFC had ceased operation some years ago due to lack of support from its members. As regards the top-down approach referred to in Mr Tomlins letter, STI explained that Government was obliged to take the lead in the promotion of the use of EDI in the business community, and this was done in the interest of the trade. The Government had consulted the Textiles Advisory Board (TEXTAB) and the Trade Advisory Board (TAB), and had their support in this respect.
4. On the risks of Tradelinks business as revealed by the consultancy report, STI advised that these risks had been evaluated and improvement measures taken as detailed in the Information Note to the Legislative Council Panel on Trade and Industry (Enclosure 1 to FCR(96-97)17). Replying to a member, STI advised that the management problems of Tradelink could be resolved with a high level of governance in the company by the Government. Tradelink business would be viable since the Government had already agreed that EDI processing of trade-related documents such as the restrained textiles export licences would become compulsory when Tradelink was in a position to provide satisfactory services. As regards the risks of technical obsolescence, STI advised that the technical audit on Tradelink had largely been completed and the results indicated that the system was technically feasible. She noted that the technology used by Tradelink was now widely in use.
5. A member commented that the existing condition requiring Tradelink to transfer its assets to Government or its nominee at zero value upon the expiry of the Operating Agreement in 2003 might make it unattractive for other shareholders to inject more funds into the company. In response, STI advised that the condition was clearly stated in the Agreement from the beginning and was not negotiable. As regards the arrangements on expiry of Tradelinks franchise, STI advised that several options were open to the Government, for example, the company could be wholly-owned by Government, or allowed to operate under a Government licence with a premium payment, or sold to other interested companies by tender. The Administration would carefully assess the viability of these options nearer the time.
6. Members of the Democratic Party indicated that Government should have more influence in the management of Tradelink, and would therefore be prepared to support the proposal if the proposed loan was to be provided in the form of a convertible loan not exceeding $425 million, as working capital, to the Tradelink, and the amount to be converted to shares would be determined by the Government. Other shareholders or organisations should be given priority to provide convertible loans to Tradelink in the same manner.
7. Members were generally in support of the option of a convertible loan, and sought the following clarification from the Administration regarding the implications on the existing or prospective shareholders of Tradelink:
- whether it would be fair to the other existing shareholders of Tradelink as the amount of convertible loan from Government would increase Governments share from 48% to about 85%, thus significantly reducing the shareholdings held by the other nine existing shareholders;
- whether the other existing shareholders would object to Governments proposal as Government only held a 48% share while important decisions of the company should be supported by shareholders representing not less than 80% of the shares; and
- whether Government should lend at a more favourable interest rate in return for an option to convert the loan to shares of the company.
8. In response, STI advised that a convertible loan was feasible, and provided the following clarification on the points raised by members:
- The proposal of providing a Government loan to Tradelink was made in consideration of the unwillingness of other shareholders to inject more funds to the company. Any existing or prospective shareholder of Tradelink was welcome to provide convertible loans to the company on the same terms as proposed by Government, thus reducing the amount of Government loan to the company.
- Both the Government and other shareholders of Tradelink shared the same objective of making Tradelink viable. In this respect, the shareholders of Tradelink actually welcomed a higher degree of Government involvement in the management of the company, and would therefore unlikely object to the present proposal. In the unlikely event that other shareholders did not agree to the proposal, they would have to be prepared for the eventuality of winding up the company, and each shareholder would have to bear the outstanding liabilities in proportion to its shareholding.
- The best lending rate was considered appropriate for a commercial loan, and Tradelink could still negotiate with other banks for loans on more favourable terms.
9. Responding to members questions on the viability of Tradelink, STI assured members that both Government and other shareholders of Tradelink were committed to making the business viable. Various improvement measures had been taken in view of the comments in the consultancy report, and Government had strengthened its presence and monitoring of the management of the company. In addition, Government decided that the use of EDI should be made compulsory by stages in order to accelerate the progress in the use of EDI by the business community. The Government was confident that with these measures, Tradelink would be viable.
10. Some members of the Liberal Party pointed out that based on the cost-recovery principle, the high operating costs of Tradelink might subsequently result in exorbitant charges for export licences. This would significantly affect members of the trade and potential users of Tradelink. They were worried that as the operation of Tradelink was outside the purview of the Legislative Council, there was a risk that such fee increases might go unchecked. In response, STI advised that while Government could not make any promises on future fees for the export licences, she assured members that TEXTAB and TAB would continue to be consulted on any proposal to increase such fees, and that the decisions would rest with the Governor in Council.
11. Members of the Democratic Alliance for the Betterment of Hong Kong (DAB) indicated that while they agreed that Hong Kong should keep up with the world trend in the use of EDI, they had reservations about the proposed loan by the Government in view of the risks revealed by the consultancy report, and the possibility that other shareholders might reduce their commitment to the project resulting in increased liability of the Government.
12. In concluding the discussion, the Chairman advised that based on the information provided by the Administration, there was a demonstrated need for the community to adopt EDI for trading, and that a convertible loan would have the advantage of increasing Governments influence in the organisation of Tradelink, thus enhancing its control and monitoring of its operation. In view of members preference for a convertible loan, he requested the Administration to consider modifying its proposal to that effect. As regards the accountability of Tradelink and the possible impact on the future charges of export licences, the Chairman suggested that the subject could be followed up by the LegCo Panel on Trade and Industry.
13. Having regard to members comments, the Secretary for the Treasury put forward the following revised proposal for members consideration :
We propose to provide a loan of up to $425 million to Tradelink for working capital. We would make the proposed loan available to Tradelink in the form of a convertible loan on the following terms and conditions -
- Amount : a maximum of $425 million;
- Term : the maximum period that is demonstrably required by Tradelink for cash flow purpose and ending no later than the term of Governments Operating Agreement with Tradelink;
- Drawdowns and Repayments : drawdowns on a need basis, with options for early repayments before maturity;
- Payments of interest : interest on the outstanding balance (including accrued interest not paid) to be calculated and paid monthly;
- Interest rate : the average of the best lending rates quoted by the note-issuing banks (namely, the Bank of China, Standard Chartered Bank and The Hongkong and Shanghai Banking Corporation);
- Convertible loan : the Secretary for the Treasury will be delegated the authority to determine the amount of loan which should be converted to shares of the Company. Such conversion of loan to shares will be at par value and any such shares will rank pari-passu with all other shares of the Company;
- The maximum convertibility of the loan is $425 million; and
- The Government will give the other shareholders or other interested organisations the priority to provide the convertible loan to Tradelink, thereby reducing the Governments portion of the loan correspondingly.
14. With members agreement, the Chairman put the revised proposal to vote. Members of the DAB abstained. The revised proposal was endorsed.
15. The Committee approved the revised proposal.
16. The Committee was adjourned at 3:30 p.m.
Legislative Council Secretariat
25 July 1996
Last Updated on 27 November 1998