SINCE the row with China over the level of debt to be raised to fund the airport began in April 1992, interest rates have risen by 1.5 per cent. This will add $2.5 billion to the cost of borrowing the estimated $25 billion needed over an average of five years, which is the latest debt level offered to the Chinese side. Every basis point added to interest will add $2.5 million a year to the cost of debt. In addition, the key Hong Kong dollar swap rate has risen by almost 2.5 per cent in the past six months. The Government is unlikely to be able to raise funds in the cheapest and most efficient way - on the public debt markets by issuing bonds - according to Wardley Capital director Simon Moules. Although he said there would be a strong appetite for the debt because of the reputation Hong Kong commands for completing projects on time and on budget, he cautioned that timing constraints might make it necessary for debt to be raised in the syndicated loan market, where banks club together to provide funding. This market had the biggest appetite, he said, but there were trade-offs because banks would charge higher interest and might not be able to provide the same maturities for debt, which would also raise costs. ''I should not think it will have a major effect. It would be a matter of a few basis points in extra interest,'' he said. Hong Kong has also seen its credit rating fall, as rating agency Moody's Investor Services is worried about Chinese meddling in the local economy. This factor has cost Hong Kong a minimum of 25 basis points, according to one senior banker. A banker said borrowing should have been spread over a long period, with a regular, planned programme of bond issues.
