Govt loses $9M on defaulted stock

Press, 1 February 1986, Page 22

Govt loses $9M on defaulted stock

PA Wellington The Government yesterday paid an average interest rate of 19.369 per cent to sell the SIOOM of Government stock defaulted on by Rakiura Holdings, Ltd, two weeks ago. This was well above the 16.69 per cent of the defaulted bid and means the Government will lose just under S9M on the sale price of the stock. (The stock carries a nominal or coupon rate of 16 per cent and anything bid over and above this rate is discounted from the sale price). However, the Government will save about SIM in Interest pay-outs since yesterday’s buyers will uplift their stock up to a month later than Rakiura Holdings should have done.

Yesterday’s average rate of 19.369 per cent for the SIOOM of October 1991 stock was marginally down on the 19.421 per cent paid for SIBOM of the same stock at the regular January tender a week ago.

; Dealers bid a total of 5334.9 M for the stock at this week’s re-tender,

down from $397 million last week. Details: 1991 stock — Offered, $100M; Bid $334.9; Sold $100; Successful yields, 19.2 per cent to 19.39 per cent;Weighted average, 19.369; Previous average, 19.421. The tender was spread among 66 successful bids — a far cry from its original fate in December when just the one bid was declared to be successful.

Trading banks (six successful bids) yesterday took $7.7M, finance companies (two bids) $12.3M, merchant banks (24 bids) $36.6M, life insurance offices (three bids) $6.3M, building societies (two bids) $500,000, sharebrokers (19 blds) $20.5M, and government organisations (10 bids) $15.9M. The remaining $200,000 went to non-competitive bids.

The new bids for the defaulted stock would cost the taxpayer an extra $15.16M, the Opposition finance spokesman, Mr Birch, said yesterday. The Government paid an average interest rate of 19.369 per cent, compared with the'l6.69 per cent of the defaulted bid.

The additional cost was the price the public would pay for the neglect of the Minister of Finance, Mr Douglas, Mr Birch said in a statement.

Mr Douglas had claimed the low Rakiura tender showed that interest rates were coming down and that Government policies were working.

“It is now plain that the bld was out of line with market trends,” Mr Birch said.

“The underlying risks in allocating the whole of the SIOOM six-year stock to a company with only $lOOO of capital and with the interest rates tendered out of line with Reserve Bank expectations should have been obvious to him.

“Mr Douglas now owes the public a full and frank explanation. Both Rakiura and the minister have been in default of their responsibilities,” Mr Birch said.

The Reserve Bank must immediately strengthen its tendering systems and ensure that defaults were discouraged through the imposition of penalties, said Mr Birch.