For discussion
on 21 February 1997
FCR(96-97)108

ITEM FOR FINANCE COMMITTEE

CAPITAL INVESTMENT FUND
HEAD 972 - TRADING FUNDS

Subhead 102 Loan to Land Registry

Members are invited to approve the extension to 31 March 2001 of the drawdown period for $115 million of the Land Registry Trading Fund’s existing loan facility of $160.7 million.

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PROBLEM
PROPOSAL
JUSTIFICATION
FINANCIAL IMPLICATIONS
BACKGROUND INFORMATION
Efficiency of Trading Funds Service Performance Land Registry Trading Fund
Land Registry Trading Fund Cash Flow Projection

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PROBLEM

The Land Registry Trading Fund (LRTF) needs continued access to a credit line after March 1997 to provide an adequate level of working capital in order to implement new projects and continue providing customers with modern, economic and efficient services.

PROPOSAL

2. We propose to extend the drawdown period of the estimated undrawn balance ($115 million) of the existing loan facility granted from the Capital Investment Fund (CIF) to LRTF for financing a number of capital projects and improvement initiatives from 31 March 1997 to 31 March 2001. The terms and conditions of the proposed extended loan facility are -

(a) Drawdown period

LRTF can draw down the loan as and when necessary from 1 April 1997 to 31 March 2001.

(b) Credit limit

The outstanding loan balance plus interest accrued thereon under this arrangement must not at any time exceed the maximum credit limit of $115 million.

(c) Repayment term

LRTF will repay the loan by five equal annual instalments beginning on the first anniversary of the date of drawdown. LRTF may repay the loan in whole or in part at any time ahead of the repayment schedule by giving two weeks’ written notice in advance, provided that such amount should not be less than $10 million in any one transaction.

(d) Interest rate

LRTF will pay interest at a rate equivalent to the average of the best lending rates quoted by the note-issuing banks, namely the Bank of China, Standard Chartered Bank and the Hong Kong and Shanghai Banking Corporation Limited.

(e) Payment of interest

LRTF will pay interest, calculated at simple interest basis on the outstanding balance, annually on 1 August.

JUSTIFICATION

3. Over the years, the Land Registrar has implemented a number of capital projects to improve the LRTF’s services. Examples of service improvement are at Enclosure 1. Due to increased customer expectations, the Land Registrar plans to carry out the following capital projects and improvement initiatives during the period from 1 April 1997 to 31 March 2001 at a total estimated cost of $249 million. These projects are -

Encl.1

(a) Imaging of all land documents (Document Imaging System)

The Land Registrar originally intended to use the existing loan facility for the microfilming of all New Territories land records. However, due to the advancement in computer technology, the improved quality of computer scanning, and the public’s growing demand for both urban and New Territories land records, the Land Registrar has decided to go ahead with the computer scanning and imaging of land documents for the entire territory. The Land Registrar estimates that the system development of the Document Imaging System (DIS) and the conversion of land documents into electronic images will cost $136 million, spread over the coming four years. This system can store, retrieve, reproduce and distribute land documents much more efficiently. Customers will enjoy fast and convenient land search services and the Registry will benefit from savings in storage and operating costs which the Registry can pass on to customers.

(b) Centralisation of the processing of land documents (central registration system at a Central Registration Office)

At present, each of the nine geographical registration offices of the Land Registry processes land registrations separately. The Land Registrar intends to carry out before mid 1997 a feasibility study on a Central Registration System for use in a Central Registration Office (CRO). The Land Registrar estimates that the system will cost about $88 million. Upon implementation of the system, LRTF will centralise all registration of land title deeds in the CRO. LRTF can achieve better utilisation of office equipment and more flexibility in the use of manpower and other resources to meet variations in workload.

(c) Other improvement initiatives

The Land Registrar also plans to implement other minor improvement initiatives, such as the inclusion of Chinese templates in land registers and the direct entry of data by customers lodging documents for registration. The Land Registrar estimates that he needs about $25 million to implement these initiatives.

4. The Land Registrar estimates that LRTF can fund 70% of the cash flow requirements for the above projects internally. The extended loan facility will provide the necessary remaining funding and provide flexibility if there is a downturn in the property market or delay in project implementation. A cash flow projection of LRTF for the period from 1997-98 to 2000-01, based on the current market position and taking into account general inflation, is at Enclosure 2.

Encl.2

Without the loan facility, the LRTF will have cash deficits for the years 1997-98 and 1998-99. This would mean that the LRTF would not be able to proceed with the improvements as planned.

FINANCIAL IMPLICATIONS

5. There will be no increase in the approved commitment for the loan to LRTF. The extension of the drawdown and pay back periods will not affect the CIF cash flows in any significant way.

6. We expect the proposal to have minimal impact on fees because the loan interest will be offset by savings to be achieved from the aforesaid capital projects.

BACKGROUND INFORMATION

7. On 16 July 1993, Finance Committee approved a loan facility of $160.7 million under the CIF to LRTF for improving its services, including among others, provision of remote direct access on-line search facilities, the computerisation of New Territories land records and microfilming of New Territories land records.

8. The LRTF has implemented the on-line search facilities and has almost completed the computerisation of New Territories land records. The LRTF has contained the actual costs of these projects within the budget and have largely covered the costs by LRTF’s income.

9. We discussed this proposal with Members of the Legislative Council Panel on Planning, Lands and Works on 21 January 1997. Members of the Panel sought further clarification on the delay of the microfilming project and the fluctuation in the net cash flow.

10. The delay of the microfilming project, as we explained in paragraph 3(a) above, arose from the Land Registrar’s decision to modify the nature and scope of the project from microfilming all New Territories registration documents to electronically imaging all documents under the DIS to enhance the search facility.

11. As regards the fluctuation in the net cash flow projection, the sudden increase in 1996-97 is mainly due to the increase in property transactions. The cash flow projection in the subsequent years has taken into account the general impact of inflation.

Planning, Environment and Lands Branch
February 1997

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Enclosure 1 to FCR(96-97)108

Efficiency of Trading Funds Service Performance Land Registry Trading Fund

Enclosure 2 to FCR(96-97)108

Land Registry Trading Fund
Cash Flow Projection

		Audited Actual 1995-96 $ million		Outturn Forecast 1996-97 $ million		Projection 1997-98 $ million		Projection 1998-99 $ million		Projection 1999-2000 $ million		Projection 2000-01 $ million
Operating Activities
Cash received from customers		362.3		503.1		524.2		563.2		612.9		670.9
Payments to suppliers and employees		(290.9)		(318.8)		(366.3)		(396.8)		(439.8)		(482.3)
		71.4		184.3		157.9		166.4		173.1		188.6
Servicing of Finance
Interest paid		(18.1)		(17.6)		(18.5)		(17.8)		(17.8)		(10.0)
Taxation paid		(4.3)		(1.0)		(2.5)		(4.2)		(7.3)		(20.4)
Dividend paid		(7.3)		(13.9)		(23.8)		(12.3)		(10.7)		(12.4)
		(29.7)		(32.5)		(44.8)		(34.3)		(35.8)		(42.8)
Capital Expenditure
Capital projects		(54.1)		(165.2)		(141.4)		(99.2)		(5.1)		(4.0)
Other assets		(9.5)		(11.4)		(1.4)		0.0		0.0		0.0
		(63.6)		(176.6)		(142.8)		(99.2)		(5.1)		(4.0)
Net cash inflow/(outflow)		(21.9)		(24.8)		(29.7)		32.9		132.2		141.8
Loan from the Capital Investment Fund		13.0		32.0		0.0		0.0		0.0		0.0
Loan repayments		(23.7)		(26.3)		(32.7)		(32.7)		(32.7)		(32.7)
Cash balance at beginning of year		63.3		30.7		11.6		(50.8)		(50.6)		48.9
Cash balance at end of year		30.7		11.6		(50.8)		(50.6)		48.9		158.0

Assumptions
(1) assume second loan drawn down of $32 million in March 1997
(2) capital projects will be developed as scheduled
(3) assume overdraft will be borrowed from bank at prime lending rate plus 2%

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