CORRESPONDENCE RESPECTING THE FOUR MILLION LOAN.

Globe, Volume IV, Issue 347, 23 July 1875, Page 2

CORRESPONDENCE RESPECTING THE FOUR MILLION LOAN.

[By Telegraph.] (From a correspondent of the Press.) Wellington, July 22. Writing under date March 19th, the Crown Agents inform the Colonial Secretary: —“ We acknowledge the receipt by the hands of Mr Yogel of the Order iu Council, dated 10!:h, 1874, appointing him and ourselves joint agents for raising the loan. As the order contained no direction as to the date the Government desired us to negotiate, nor any intimation whether we were expected to place it upon the market by one or more operations, we were necessarily governed by Mr Yogel on these points, and from him learnt that the liabilities of the colony were such as to render it advisable that the whole amount should hls.disposrd of in one operation. a portion of the last issue debentures was still in the speculators, and the demand for rities being of a very limited character, it was evident to us it would be hopeless to expect the open market to at once absorb so large an amount ; therefore we had no alternative but to resort to a contractor or syndicate. To forsake the old channel through which the loans of the colony have been successfully placed on the London market, and to resort either to those exoensive and by no means popular agencies for dealing ;in loans, was a step that nothing could have justified our acceding to, but the absolute necessity under which we were placed of immediately raising, or procuring a guarantee price for at least double the amount the public were prepared to lend. Of the two agencies named, we preferred a syndicate as presenting to the public no apparent deviation from the previous practice, and as less costly ; but after the breaking off of our first negotiation with . Messrs Rothschild, because they declined to give more than 88 nett for a 4.’ per cent loan, we found the syndicate unwilling to guarantee an acceptable price for more than half the required amount, consequently we had to revive the negotiations with Messrs Rothschild, which resulted in their accepting our offer at 91 net. The reasons which originally led us to adopt 4£ per cent as the rate of interest most advisable for the New Zealand loans are fully explained already. It is only necessary here to add that recent experience tended to confirm our belief in the wisdom of adopting that rate. The loan has been negotiated at a rate which, after deducting allowances and commission, secures to the Government about £9l net. At this rate the borrowers will pay, exclusive of loss on redemption, about £4 18s lid per cent yearly. Out of the money received we have paid off £280,000 of temporary advances obtained from the Bank of England on the security of guaranteed debentures, and we purpose paying the remainder (amounting to £380,000) at intervals as it falls due, between this and the 15th of May. Had circumstances permitted us to negotiate the loan in two equal parts, with, an interval of nine or twelve months be-, tween, we believe we could with success; have appealed direct to the public with veryconsiderable saving to the colonial ex--chequer, and with the probable advantage that only a comparatively small portion of the loan wculd have fallen into the hands of speculators. Under the present arrangement we are ignorant as to the character aud number of subscribers and the amount actually taken by the public, but reports current in well-informed circles incline us to believe that the greater part of the loan is now held on speculation, and will for a long time to come be pressed upon the market whenever remunerative sales can be made. Until that process has ended, if our surmise be correct, it appears to us, so far as it is possible to judge of the future, that the Government of New Zealand will act wisely in abstaining from all attempts to place upon this market any further loans. The most immediate effect of the line of action that we have adopted appears in the depreciated value of the new debentures. The net market price of the New Zealand 4£ per cents on the Ist February was 97, whereas (without any change for worse in the money market in the interval) the rate at which the public were invited to subscribe for the new loan was vvith deferred payments, virtuaJiV'^^E^l":^,

it to 93. This depreciatisn of below the previously Existing price, certain rebates in- the shape of commission, was the highest point at which the contractors would undertake to guarantee the taking up of the loan. As these conditions were considerably more advantageous than we were at one time led to expect, the terms upon which the transaction was carried out appear to us indeed exceptionally favorable;, when it is considered how recently tha previous loan had been negotiated, how large the present operation is, and how prejudicial were the circumstances by which it was surrounded. Comparing the negotiation with those for the identical securities which preceded it, and excluding from the calculations the incidental expenses, the results are as follows The price realised on £500,000 of -U per cents, sold in January, 1874, after deducting commission and brokerage, was £97 4s 2d ; the price realised on £1,500,000 4£ per cents, sold in May, 1874, after deducting commission and brokerage, was £95 4s 2d. The price realised on the £4,000,000, 4£ per cents, sold in March, 1875, after deducting the commission and brokerage, was £9l. Oa the first of these loans the charge was £2 15s 10(1 per cent on the whole amount, which will fall on the Government at maturity equal to £13,958 ; on the second. £4 15s !Od per cent, equal to £71,875 ; on the third, £9 per cent, equal to £360.000. In disposing of raoreof the colony’s securities than the market was able at once to absorb, H became absolutely necessary to make such a reduction in the price as might on the one hand, if possible, tempt the general public largely to invest money in these debentures, or as might on the other hand induce speculators to purchase them with a prospect; of selling hereafter on beneficial terms. It must be remembered that the highest price (£97), was on retailed transactions relating to small sales of £SOO aod upwards, whereas the lower price (£94),

virtually representing £93, was a wholesale one put forward with the view of inducing subscriptions to the extent of £1,000,000. We regret exceedingly Mr Vogel so far dissents from the opinions expressed iu this report as to decline joining in it.”

Sir Julius Vogel reports separately, undei date March 18th “ On the afternoon of the 9th instant, before the closing of the Californian mail, a draft letter, prepared by Mi Julyan, was brought to me by Mr Sargeant and Dr Featherston to be approved, for transmission by the mail. I pointed out that the calculations and inferences drawn were incorrect, and the draft was taken away. On the afternoon of the 17th 1 received two documents, one a draft report, which I was asked to sign, the other a copy of the letter already signed by the other three agents. If the letter had been signed by Messrs Julyan and Sargeant alone, it would have been worthy of little remark, for it would only have appeared to be an eager bid for securing the negotiation of future loans. The addition of the Agent-General’s signature gives to the letter another complexion. I confess to feelings of great surprise at his having signed the letter, and the letter borrows such weight in consequence as you and others will be disposed to accord to it. I shall probably take another opportunity of p'acing on record my recollection of what took place between the agents during the negotiation of the loan. I had immense difficulties to contend with in the nature of 'the reluctance felt by those interested in colonial loans to seeing such a house as Messrs Rothschild’s embarking in the business. Mr Julyan so conducted the negotiations with that house as to lead to their utter break down. I took them up, and, with Dr Featherston’s assistance, carried them to a result, which those persons who have spoken to me on the subject have told me they considered a brilliant success. I was under the impressio i that Dr Featherston coincided with me, and I was amazed at seeing his signature to the letter. He has told me he has not actually signed the letter, but he does not withdraw it, and it is incredible that Messrs Julyan and Sargeant would have attached his signature, without considering they had his authority to do so. At present I only observe upon the letter to say this, that the insinuation that Messrs Rothschild will only bring out the loans of embarrassed states, or that it is injurious to the credit of a state for them to bring out a loan is absurd and ridiculous. They only bring out loans in which they believe, and the fact of their bringing out this loan gives it a reputation quite beyond anything in the power of Messrs Julyan and Sargeant. People subscribe to Messrs Rothschild’s loans because that house brings them out. I am not aware they adopt a similar course because of the Crown agents issuing loans. Those gentlemen are regarded as eminently respectable, but they have nothing like the money power or reputation for commercial sagacity that belongs to Messrs Rothschild. Do not believe that a syndicate without Messrs Rothschild would have taken up more than £2,000,000, or at more than 90, nor that the public without a syndicate or Messrs Rothschild would have taken up anything like that amount. There are two circumstances to which you will no doubt attach much weight. I allude first to the fact incidentally men ■ tioned thatthough Dr Featherston informs me the letter was not signed, a copy was sent me by Mr Julyan in which Dr Featherston’s usual signature was inserted between those of Mr Julyan and Mr To say the least this betrays an alarming laxity in dealing with a signature so important as that of the Agent-General. The second circumstance is, though I am one of the agents, the other three agents, without inviting me to attend, prepared or approved, in what I may call a secret conclave, a report for submission to me, and also decided upon a letter for their separate signature. This was done behind my back, though it is not too much to say that to me is due the successful negotiation of the loan. I proceed to report on the sale of the four million, reserving for a future occasion further remarks on the course adopted by the other agerts. The large amount of the loan, and the condition of the New Zealand securities in the money market caused me to think it desirable that such an arrangement should be made. I believe when all the circumstances are considered the result should be regarded as exceedingly satisfactory, and as one which only Messrs Rothschild’s immense influence could have achieved. Those gentlemen authorise me to say (I quote their written words) —“ The whole loan for four millions was more than fully applied for. We could have given the whole loan away and not kept a sixpence ourselves. We made 1700 allotments, and never had a better list of subscribers. Sevtral banks and insurance companies are subscribers largely, and we have every reason to think they will hold the as an investment.” Necessarily, the ■jfeMQgements with Messrs Rothschild were in accordance with the interests of those accustomed to deal in colonial securities. Consequently, some amount of opposition to the loan has been shown, but that was a contingency with vhich Messrs Rothschild had to deal. The price at which the loan was issued is nominally £94. The instalments are spread over a period in such a manner as to equal 1 per cent, making the price to the public £93. The commission Messrs Rothschild received was 2 per cent, so that the net return will be £9l. For the commission of 2 per cent Messrs Rothschild guaranteed the sale of the whole loan, three millions at once, and one million within twelve months. Immediately after applications had been received, Messrs Rothschild ) otified that the whole loan was disposed of. It will, no doubt, be interesting to compare the return obtained for this loan with former loans, and also to know the actual rate per cent per annum at which the money is now borrowed. The £9l per £IOO to be received on a 4£ per cent loan, redeemable at thirty years, is tantamount to borrowing at £5 3s per cent, including the annual percentage necessary tc represent the difference between the price realised and par, which will have to be giver when the loan is paid off in full. The firsl New Zealand loan, bearing 4J per cent inte rest, negotiated in January, 1873, was foi £500.004*, and was offered at a stated rat( of £9B. £369,500 were at once sold am the balance, £130,500, had to be disposed o at an additional allowance of J per cent. It company with this loan and the others men tioned, with the one negotiated by Messr Rothschild, it is necessary to remember tha -the commission of Messrs Julyan am Sargeant was per cent, and that an addi tional 4 per cent was allowed for brokerage so that of the £500,000, £369,500 netted £9i less 4 per cent, and the £130,500, £9B les | per cent. I take the commissions state* above from what I understood have besn tb

rates charged, but in one of the documents sent me by Messrs Julyan and Sargeant I observe £97 4s 9d stated as the net price, so that larger concessions or allowances must have been made than appear in the documents before me. I state this not by way of complaint, but but to explain the possible inaccuracy on my part. The next amount offered at 4£ per cent was £1,500,000 in May last. The nominal price of issue was £9B, but taking into account the dates of instalments, there was accrued interest equal to £1 11s Id per cent to be added to the \ per cent for commission and brokerage, so that the price at which the loan was offered amounted to £95 18s lid. On these terms £673,400 were ap plied for, and the balance £826,600 sold to a syndicate at a considerable reduction, namely, 1 per cent extra for commission, besides £ per cent for the usual brokerage and commission before mentioned, and allowance for interest by extending the payment of the instalments; equal to £1 19s 4d. The balance therefore realized only £94 10s Bd. It will be seen that of the January loan of £500,000, £369,500 were applied for, and realised £97 10s, whilst the balance, £130,500, realised £97 ss. That of the May loan of £1,500,000, £673,400 were applied for, and realised £95 18s lid, whilst, for the balance, £826,600, only £94 10s 8d were obtained, and that the recent loan of £4 000,000 realised £9l. It is instructive to observe the manner in which the previous loans had to be sold at reduced rates, after applications had been invited from the public. The £1,500,000 offered in May last went off with great difficulty, and was to a large extent, only sold through the making of an extra concession beyond what had been publicly advertised. The same course, to a less extent, had to be adopted with the loan in January, 1874. As to these additional concessions, 1 desire to point out, although the agents found it necessary to make them in order to effect a sale, they must have felt such a course exceedingly distasteful, on account of the dissatisfaction any such proceeding is calculated to create in the minds of those who, having responded to the advertisement, which they suppose tells the real price at which the loan is to be disposed of, find afterwards that much of it has been sold by the Government at a rate lower than advertised. So much was this felt the case with the May loans that applications have been made by the buyers first portion of it for a concession in *the shape of a reduction of the price. In the present instance no objection can be made on that score. The loan was offered to the public at a standard rate as far as the agents were concerned. Messrs Rothschild were to receive a standard commission on that, which could not be considered excessive, seeing they were to guarantee the sale of the whole £4,000,000. In the present instance, too, the whole loan was at once disposed of, a result which has not recently been the case with colonial loans. In conclusion, I express a hope that it will be some time before it is necessary for the Government again to have recourse to the money market, and that by this time New Zealand securities will have very much increased in value.”

The rest of the correspondence is very voluminous, extending over twenty pages of print. That between Sir Julius Vogel and the Crown agents is very acrimonious. In a letter dated March 18th Mr Yogel says he “ is willing to make great allowances for the natural disappointment at the great success of the loan negotiations through another channel than that hitherto adopted, and after Mr Julyan’s failure, and expresses surprise at the course adopted of sending a letter to the acting Treasurer, when he (the Treasurer) was in England, and intimates he will advise the acting Treasurer not to reply. A most acrimonious discussion follows.