A FOOL'S PARADISE?

Dominion, Volume 5, Issue 1496, 19 July 1912, Page 5

A FOOL'S PARADISE?

THE RECENT FOUR MILLION ANB A HALF LOAN. .

STRONG COMMENT BY LONDON "TIMES."' FOLLY OF SHOUT-TERM NOTES. By tho American mail yesterday, the British newspapers up to June '12 came to hand. The prospectus of the recent i\ million loan was advertised in the principal papers op. Juno 8. Since it' Was advertised that the application list would closo "on or before July 12," the newspaper,? to hand woro'iwt in a position to Know what proportion of the loan was taken off tho underwriters' hands by tho public. >■■- Tjio press cables told us a mouth aga that the public response was very poor— tho underwriters being left with almost the whole of theloan on their hands, and this despite tho excellent tonus offeroil. of the newspapers had a littV comment prior to the closing of the list. Iho ''Financial Times" wrote recoiumending tho issue- as a real bargain for investors (which . would be a eorrespMidliigly bad bargain for ,Nmv Zealand). ' It said tho yield to tho English investor would bo about £1 fls. Bd. per cent.; and added:— "It.is not often that the public in given an opportunity t/i subscribe for"'a short-dated loan of this character, because such issues are usually taken up .privately, and this opportunity will no doubt bo appreciated. In these- days, also, when holders of gilt-edged sccuriliM havo suffered so much from depreciation in tho capital value of their stocks, th< fact that the prospect of depreciation in this case is eliminated by tlio early re deinption at par should appeal to the public. Tho yield is a good one for a' seourity of'this class." The "Morning l'ost," after commenting on the large amount of tho five-million loan of 1909 that was loft on tho underwriters' hands, said:—"That seems a bad rosult, but the ordinary investor could' not be expected to take much interest in a security with so short a. life; and it is rather surprising that the issue should havo been offered publicly at all. Many underwriters, no doubt, arc willing enough-.to'take up tho debentures and keep them, which explains , the fact that in spite of tho result of the issue they aro quoted at a small premiuin." Tho '.'Westminster Gazette" in its issue of June 8, had tho following reference to "tho weakness of Consols":—"That Conpols'should.have touched k> low a quotation as that'■ recorded. yesterday, .is • certainly unpleasant, but it is perhaps hardly surprising when the circumstances are taken into account. - Only yesterday morning wo remarked in a note dealing with the New Zealand loan, 'There is naturally much disappointment in tho Cousol market at the fresh decline which has taken place recently in tho price i indeed, no sooner is there an apnearanco of greater strength than some large new borrowing operjviion, tempting to investors, brings-about-a renewed downward movement.' Of eoiirso there aro many contributing causes to tho decline, but undoubtedly tho main influence is tho largo, new; capital: creations/ nnd; especially the New Zealand' loan'. Even at the reduced price, the yield on.Consols is appreciably below that which, can ; bo secured on mony first-class securities, and investors generally aro not content with so. low a'yield as they were edmo yeara ago." . ~ ■ .'''•■■• The "Pall Mai) Gazette" 6aid that Now Zealand plight just as well have raised the loan in. a more permanent form. The "Gazette" added ft doubt whether tho conditions will bo any better hvo -yoare hence, "since tho tactics" of "tlioMfomo Government cause investors to'scrutinise colonial .pretensions as narrowly.-.as-our own, flmd raises suspicions 'which do not help our colonies even with legitimate forward policies." Tho issue would nppeal to those looking for "a satisfactory 4 per cent, jlock-up" for a couple of years." "Wo cannot hut think," the '"Gazette"' ■ concluded, "that tho .advisers' of ' New Zealand have made .a mistake in not adopting a more permanent form for tho loan." The most important comment of oil was that of tho London "Times," in a special article, in its issue of June 12, on ''The Situation on tho Stock Exchange." In tho 'course of this article it New Zealand Govemmentlnst Week nlade an issue of Three-and-a-half per Cent. Two Years' Debentures 'ftf-99, :aild the market did not like it at all, not only because the amount is inconveniently large from tho point of view of capitalists who already hold many similar issue?; but because the yield is so high a-v to ' ■make existing colonial securities look, ■dear. Many people are beginning to think that'thero has been enough pt these issues of short-dated debentures; or 'notes,' as our outspoken cousins across, tho Atlantic call them, when issued 'by' railroad companies'. That the issue is, nevertheless, the best way for thoNcvr Zealand Government out of a difficult position is probably true, but some very good judges axo of opinion that it would liave been bettor finance to issue a longi per cent, loan at a trifle under par thau to pay over—possibly, a good deal over—that rate for the chance of renewing on better terms in two years' ■ time. He must be.a very stinKuino man who can feel confident that the state of, the money market, and of New Zealand's finances will be such that that State will bo able to borrow at less than.4 per.cent, when these debentures fall due. There is no use' crying over spilt milk, however,' nnd if the meaning of the issue is fully grasped by everyone, good may result; for, there is no 'doubt that tho terms of this loan more nearly represent the facts as to the credit of New Zealand and of some other countries than the ideas hitherto prevailing in official circles on. that subject. To awake out of a fool's ■ paradise is disagreeable, but to ro op sleeping in it is to court trouble."