The Press. Monday', June 7, 1920. The Coming Loan.

Press, Volume LVI, Issue 16854, 7 June 1920, Page 6

The Press. Monday', June 7, 1920. The Coming Loan.

Expert opinion, as recorded in our columns on Friday, is not quite unaniinous in j-egard to tho prospect of the Government being able to place the j coming two million loan. Tho weight ( of opinion, however, supports the be- . lief that the operation will be success- i ful. At the same time, this - .success will be due rather to , tho preference displayed by many 1 investors, especially those with Only ; a few hundreds to spare, for investment in Government stock or bonds, than to any particular attractiveness in the terms of the loan. These, indeed, fall a good deal short of < what was expected by soino financial i men, who thought it quite possible that < the new loan might issued at 5 per t cent., free of tax, br, if that were in- i advisable, from political and other reasons, as it certainly would have been, * at 5} per cent., and liable to ipcome- j tax. From a purely business point of c view, the new ■ loan will offer to in- j vestors no-advantages over the 51 per t cent, issue of a local body, such as that of the Tramway Board, for which the g security is every whit as sound as that ;i afforded by the Government. As it is, j; a fair proportion of tho money sub- s scribed for "tho new loan will certainly t como out of tho Post Office Savings * Bank, where the Government has the s use of it on lower terms than will at- £ tach to tho new issue, and to this cx- s tent, therefore, the Government will I lose, insteacl of gaining. Some more, no doubt, will be taken from current j deposits in tho banks, especially by s thoso who, doubtful of. the future course of the money market, are will- r ing to forfeit the chanco of a still bet- r ier return for their money for the solid t security of an absolutely safe 5 per ' cent, for the nest ten years. '

If the Government get the money they require, as we have no doubt will be tho case, they will be considerably luckier than the Government of New South "Wales, who have just issued the prospectus of a two-million loan, -iyifch a currency of five years, issued at par, and hearing interest at the rate of o£ per cent., free of both State. and Federal income-taxes. The loan is of an emergency character, certainly, being mainly for the purpose of making advances to necessitous farmers suffering from the effects of the disastrous drought, but tho terms suggest that the Government is buying money at a somewliat- high rate. For if tho New Zealand Government's 4$ per cent, tax-free debentures are worth, as stated, 7i percent. to a wealthy investor, tho New South Wales 5i per cent, debentures, free of tho incomo taxes levied by the Stato and the Commonwealth Governments, must bo worth, to anyone paying tho highest rates of these taxes, appreciably more. Money,' however,' is dearer, or, in proportion to the population, scarcer in Australia than in New Zealand, for tho city of Sydney has been offering 6 per cent, for a loan of £1,100,000, on the security of city debentures, repayable in ten years. There -was. no rush to invest at this price, for when the tenders were opened, only a little oyer half a million had been covcred, though a fair amount was received subsequently. A novel feature of this loan was that an American financial institution offered, through its Sydney representatives, to subscribe £300,000, but thought the amount was to bo paid in sterling in Sydney ab once, the city was required to repay principal antl interest in New York at tho rate of 4.86 dollars to tho £11 sterling. Whatever the rate of cx-!

c-hnngc may he in ten rears' time, when tho principal would liare to be repaid, it is now about 3.82, which means that for every pound of interest duo in Sydney, the City Council would have to pay the American lender in New York, about 2.js. Sydney naturally declined tho- offer. asserting, through cne of its jvapors, that it "has not yet reached a "point when it is compelled to pay 7} " per cent, for loans, and nil indefinite "premium in repayment of principal.' 1 That is, at les.=t, something to boast of. oven though it has to pay one per, cent, more for its money than New Zealand.