THE RECENT LOAN.

Dominion, Volume 5, Issue 1494, 17 July 1912, Page 8

THE RECENT LOAN.

PARTICULARS FROM LONDON

STATEMENT BY THE HON. J. ALLEN,

WHAT THE LONDON PAPERS SAY,

Tho Hon. Jas. Allen (Minister for Finance) has received from the High Commissioner's oflieo copies of the prospectus of the four and a lialf million loan floated in Loudon by the Mackenzie Government. The prospectus states that the rate of interest is to be .t'3 10s. per cent., and that the debentures are to bo issued for a period of two years. The loan is.repayable at par on July 1, 15)14. Tho authorities are set forth as follow.—A 7 aval Defence Act,-1909,' New Zealand State Guaranteed Advances Act,, 1909-10, 1911, Aid to Public Works and Land Settlement Acts, 1900, 1901, 1903 1901, 1908, and 1911, Government Railways Act, 1908, New Zealand Loans Act, 1908. It is stated that the first dividend, amounting to .£1 ISs. 7d. per cent., representing interest accrued from June 20, 1912, upon the authorised instalments, as tney severally become due, will be paid on January 1, 1913. Tho price of the issue is set down as ,£99 per cent. The loan llotation was carried out by tho Bank of England, under instructions from the agents appointed bv New Zealand to raise and manage loans, Messrs. C. W.Tallise'r and A. S. Row. It is stated that of the proceeds of the loan issue £2,840,500" will lie utilised for the redemption of sums temporarily borrowed, to provide for redemption of debentures previously issued under tho above-mentioned Acts and £459,500 under the Naval Defence Act, 1909, to meet the Eayments in respect of the New Zealand 'readnought cruiser under construction. ■ The debentures, will be in denominations of £100, £500, and £1000, and will be redeemable at par.at the Bank of England on July 1, j914. The interest will be payable half-yearly, by coupon, at the Bank of England on January 1 and Jiiiy 1. The first coupon, due on .Tanuarv i, 1913, will be for £1 18s. 7(1., representing interest accrued to that, date, upon the authorised instalments as .they severally j become due. ' . - Dates of payment are set forth as fol- j low:—On application. £5 per cent.; Jane 20, 1912, £14 per cent; July 10, 5912, £30 per cent.; August 20, 1912, £30 per cent.; September 17, 1912, £20 pel- cent. It is added that instalments may be paid in full on or after June 20, 1912. under discount at the rate of £35 per cent, per annum. " .

Cost of Raising the Loan. The Minister for Finance stated that full details as to the cost of raising the loan had not yet come to hand, but that it would presumably cost something like five per cent, per minimi.; He assumed that the charges would be the same as in the case of the recent five : njillion loan. Discount would amouut to 1 per cent., and underwriting and other charges to 1? per cent. Apart from this, there would be some other charges to meet, and an additional sum would have to lie paid in interest owing; ,to the fact that the loan had been raised at £99 per cent, instead of at par. .• '

The Prospectus. The London correspondent of the Auckland "Herald" quotes the following from the "puff" portion of the, prospectus: "The sum of ,£2,8.10,500 will be utilised for the repayment of debentures, issued under the various Acts, and the balance, for the building of the new Dreadnought cruiser, construction 1 and ,improvementof railways, roads, and bridges, goldfields development, for other .public works required for the development of land settlement, in respect''to purchase, of nn-, tivc lauds, and for the advances .to settlers and workers. The amount: to be thus applied in aid of public works, supplements that which has been provided for years past out of-the surplus ordinary revenue, .which has supplied within the last U years no less than £7,200,000 for that purpose. , "The, total gross amount of the Public Debt on March 31, 1911, including that domiciled in London, and also that issued in the Dominion, -amounted to £81,078,122, less accumulated sinking funds £1,240,724, reducing.'the.debt to £79,837,388 net. Of this amount £15,404,238 represents loans raised for or on behalf of the New Zealand State Guaranteed Advances Office for advances'to settlers and workers, and for lands for settlement, and represents improving assets secured to 'the Department. / ' ' "It should also bo noted that £25,602,943. of the New Zealand public debt is represented by tho ~ Government railways of the country, which'last year earned £4 ls.-3d. per cent per annum on their cost, a fact which is often lost sight of when comparing the Dominion's public .debt with,.those:of the United Kingdom and other.countries. The capital represented by the railways of the. United Kingdom now exceeds £1,300,0fi0,000 of money. Add that amount to the'national debt of this country, and the comparison between it and the New Zealand debt can then be made on more equal grounds. 'Since 1891. the amounts borrowed have been, interest-bearing* 86.7,' and non-in-terest-bearing 13.3 per cent. The actual interest paid per head of population has considerably decreased." ,

London Press Comment. The news that New Zealand Govern ment was to Sloat' tt million in two-vear notes became public in London c-n Juno G, and the terms being'stated (which were a bargain for investors), Consols promptlv fell a. little. . We. give- the.first comment's, of leading English journals, in thdir issues of.'June 7 (prior to the actual flotation). (The last mail to hand left London on June ".):—' ' The London' "Times" opened its StockExchange article as follows:—"Business was very-inactive yesterday in mest departments, owing largely to the excess of new issues, from which the underwriting public is suffering. High-class investment securities, particularly Consols, were flat' on the unexpected news respecting tho financial arrangements of New" Zealand mentioned below." ■ *' ' The ■ reference is to the following sontonce in the next paragraph:—"The market for Home Government ' securities after opening with a rather firmer tendency, closed dull on the unwelcome news that an issue of .£4,500,000 New Zealand Twoyear Three'and a Half Per Cent. Notes is being arranged at 99, giving .a yield of 4 per cent. The "Financial Times" said that "the gilt-edged department was unable to hold up its head, being weighed' down by the unceasing • flow of now issues of a- competitive character." .It added:: "On the heels of the'large loans made on behalf of Moscow and the Danish Government lias cornea ,£4,500,1)00 emission by the New Zealand Government. This takes the form of a Three and a Half Per Cent, at 99, repayable at par in two'years, and thus offering a yield of -t per cent. The bulk of the money is required to repay existing obligations. This loan is being underwritten at cent." The "Westminster Gazette," under tho heading "New Zealand a Borrower," had this: —There is naturally much disappointment in tho Consol market at tho fresh decline which has taken place recently in the price; indeed, no sooner is thoro an apnearancc of greater strength Ihnn some fargo new borrowing operation, tempting to investors, brings about a renewed downward movement. The latest influence is the knowledge that • New Zealand will shortly bo a borrower, underwriting arrangements being in progress for a 3\ per cent, loan of 4J millions sterling at 99. In addition, there : arc several other borrowers'who arc likely to come forward in the near future, (if course, years ago, New Zealand, in common with other colonies, and large borrowers on approved securities, was able to borrow at a much lower rnte than it. has lately done. This is due . to the change of view with regard to what is expected in tho way of yield on money invested. Tn 1898, for instance. 3 per cent. Inscribed stocl; was issued at an average _ price, of fullv 1(10j. but in 11102 111 mi millions of similar slock was offered at it fixed price of 94.;. Tn the present condition of affairs it will be interesting to.see how great will be Hie response on the part of the public The "Manchester Guardian" said:— "New Zealand is to raise .tV.500.0W). in 3* per cent, bonds, running for two years, offered at 99. The terms are exceptionally attractive, for allowing for the "redemption at par the actnnl yield to a purchaser is 4 per cent., whilst those who take the mulerwritinj ({«t more, becatua L th6 commission is 1 per cent, It is bus-.

gested that New Zealand wants the money m order to redeem advances ''.ninth; to her for the purchase of hnttleshins. In 1010 an issue was made a 08} of .£5,000,000 3i p?r cent, bunds, but those ran for lour years, and will ha redeemable- at par on December 31, 1911. Holders, however, have tho option of converting into NewZealand Government 3\ per cent, inscribed stock at tho rate of .£lO2 stock for every .£IOO debenture, this option ceasing oil December 31. 1013. Up to Januarv last rather less than .£2,000,000 of (he bonds had been t=o converted. This issue wa> authorised by the Naval, Defence Act of IflOif and other measures, and it may be found that the new loan will afford a similar option. Kith regard to other important new loans-, an issue of Canadian Northern Railway t per cent, debentures for .£2,000,000 is expected shortly. The "Daily News":—"As mentioned elsewhere, the weakness of consols and kindred securities was partly due to New Zealand's coming competitive loan." It will be for .£4,000,000, taking the form of two-year bonds, bearing M per cent, interest. Offered at tho price of 1)9 per cent., redemption will bo at par, the yield being 4 per cent. .Someone threw out tho hint that the proceeds will he devoted to the construction of warships. Of recent years this colony has been comparatively quiet in loan operations. This particular type of loan will appeal most to special quarters."

Tho "Daily Telegraph" :—"The giltedged list was again lower, partlv owing to the underwriting which was "in ■ progrcssJ of a short-dated New Zealand Government loan for .£4,500.000, and partly owing to realisations believed to be in connection with recent deceased estates." Tho "Daily Mnil":-"Partly for its contributions to Imperial defence and partly in connection with its new Land Tax Act, New Zealand is on the i.oint of issuing a big short-term loan in this country. Tho amount, we learn, will be four and a half millions sterling in 3'< per cent, two-year bonds, to be offered atfli), the yield to the subscriber thus being i per cent. For some years past the Dominions issues in this country have consisted of short-term securities, though not so short as those now- to be offered In April 1910, five-year 8J per cent, convertible debentures to the amount of .£1,850,000 were issued at' 98J, while in tho following November five millions sterliii" of four-year 3J- per cent, debentures-were placed at the same price." The "Standard":—"Tho moment has arrived when it seems necessarv to sound a distinct noto of warning w'ith regard to tho extent to which the leadiii" lending centres are now being cvcr.struincd in the matter of iarge capital flotations No exception need bn taken as .'cards individual intrinsic merits, and so far as the New Zealand loan is concerned it is a case of a good deal of the moncr being required in. connection with maturing obligations'. One point to which attention has to be called is that 'in the aggregate these loans, which are chiefly of a foreign character, are assuming enormous dimensions, and constitute a very real menace to the money market later in the year "