THE RECENT LOAN.

Dominion, Volume 5, Issue 1500, 24 July 1912, Page 6

THE RECENT LOAN.

FURTHER BRITISH CRITICISMS,

Tho English mail to hand yesterday brought some further newspaper comments on the recent New Zealand issue of :tl per cent. Two-year Notes for Jtu,5011,000. Tho London "Times" merely chronicled the fact that it was understood that the underwriters were left with 85 per cent, of the issue un their hands, and added that New Zealand stocks fell slightly. It left its earlier comment (quoted by 'i'nii Dominion- last week) as its last word of criticism for the time being. The "financial Times" had for a head-' line; "Tho New Zealand Fiasco," and noted that "New Zealand scrip fell late tills afternoon to jj—J discount upon the very poor response mndo by the public to tho issue. New South Wales and Tasinnninn stocks and Australasian issues generally were dull in sympathy/' In an editorial note, under the same heading, it said:—"Tho list for tho New Zealand Government Two-year Debenture issue of <£1,500,000 closed yesterday afternoon. It was difficult to obtain a definite statement of the result, but from inquiries made wo believe tlio proportion left with the underwriters is about S5 per cent. Of course, a short-dated bond is not in great, demand on the part of the general investor, but in view of the attractive' terms offered, the fact that only about V> per cent, of tho loan has been applied for affords another indication that the market for new issues of an investment character is overfed." The "Westminster Gazette" had the following comment:—"lt is perhaps hardly matter for surprise that the oiler of -11 millions of New Zealand Three and a Half per cent, stock has met with a very poor response on the part of the public, seeing that tho bonds are 'short-dated,' only running for two years. Tho general investor rarely seeks for security redeemable in so short a time; rather he looks for one which he can regard as more or less permanent. _ That tlio result has caused no disappointment is shown by the fact that the issue is quoted at a small premium. While, ns we have mentioned, too much importance must not be attached in this particular instance to the disinclination of the public to subscribe, it does emphasise tho fact that there have been so many investment securities of late that time is required for them to be absorbed."

The "Manchester Guardian" shows that, the cost of the loan to New Zealand was about 5 per cent., and it discusses in general terms tho influence of underwriting competition upon borrowing.- It says:— "The'result of tho New Zealand Government loan of 11 millions is somewhat remarkable in view of the attractive twins upon which it was offered. The fixed interest was per cent., but as (lie bonds were offered at 99 and repayable at par in two years, the real return'to an investor was 4 per cent., while, to the underwriter, who received a commission of ] per cent., (lie return was II per cent. Actually it was really more, because those people received an extra. \ per cent, in accordance with-the practice relating to applications for new-issues on forms bearing the stamp of a firm of stockbrokers or a financial house. The underwriters of this loan havo bad to take up 85 per cent., which means that for the bulk of the money the NewZealand Government will pay t'< per cent., and if to this is added tho expenses of advertising tho issue, etc., it, will probably be found that altogether tho money has cost them 5 par cent. This is adjusting matters to a level which many people 111 the city consider right when they urge that _ colonial. Governments and municipalities borrowing ill* London should pay at least 5 per cent. The circumstance of | underwriters being left with the bulk ol' new loan's is becoming chronic, and a. pass lias almost been reached when such issues are only applied for by tho underwriters with tho knowledge that they will get'tho bulk. For this state of affairs the borrowers are usually blamed, being charged with issuing leans too frequently. But there is another point of view. The eagerness with which issuing houses endeavour to get the business amounts almost to competition and constitutes a distinct encouragement lo borrowers. The matter is well expressed by Mr. Hartley Withers in his b-ok 'Stocks and Shares,''' whero 110 says; 'The manufacture of crcdit has been eo skilfully worked out that the borrower, instead of going cap ill hand to tho lender, frequently holds a sort of informal auction in which the right of raising a loan for him goes to the lender who will promise to float it at the highest price.' " Tho "b'.-iturday Review" (in its city article in its issue of June 15) said: "The most spectacular event in tho city this week was tho failure of tho New Zealand Government issue of JM,500,000. Tho underwriters have been obliged to take up between SO and 90 per cent, of the amount: but tho result is not surprising. Tho wonder is that the loan was offered to the public at all. The ordinary investor does not '.c----quire a bond redeemable in two years, which will throw his money back on his hands at tho end of that period; he prefers an investment with a longer life. Tho underwriters must have been fully aware that the public subscription to the issue would bo very small, and the result can hardly ba a serious disappointment, especially as short-dated securities havo their uses in Lombard Street."