WELLINGTON NEWS

Hokitika Guardian, 17 August 1928, Page 4

WELLINGTON NEWS

LOANS IN NEW YORK AND LONDON. (Special to “Guardian.”) WELLINGTON, August 15. There lias been considerable consternation in Australia at New York bond houses hawking the last Commonwealth loan floated in New York, and the explanation given by certain American financiers is scarcely satisfactory. The Commonwealth Government issued two loans recently. The first was issued in New York in May last, and was for 50.000,000 dollars (010,000,000) bearing interest at 4) per cent and was issued at 921 ; the other loan was floated in London in the middle of last month and was for £7,000,000 bearing interest at 5 percent and issued at 98. The issue price means that for every hundred dollars bond the issue price to the public was to be 92i dollars, and with respect to the London loan for every £IOO of stock the price to the public was £9B. Roth issues were underwritten, although the procedure differed. In London the loan agent submits the prospectus to a number of financiers, and granting the terms and conditions of the loan meet with tlioii approval the loan is undentlitten. The price to the public is fixed, and in the ease of the London loan the price as stated above was £9B. The loan is then offered to the public, and if it is fully taken up, the underwriters are relieved from all responsibility and just poeket the commission. If, on the other hand, the loan is only partly subscribed the underwriters must find the balance of the money. Most colonial loans have not been fully subscribed and that has been the case with Australian loans and the underwriters have had plenty of such experiences and it does not worij them for they know quite well that they will be able to unload on the public sooner or later at a par or at a premium.

The New York procedure is different. The loan agent offers the issue to bond houses and bankers, who undertake tp buy the whole issue. In the case of the Commonwealth loan in New A oik the issue was taken up, the agreement being that the loan was to be offered to the public at 92i dollars, the underwriters or syndicate securing the loan at 90 dollars. When the Commonwealth loan was issued there was a fierce gamble on the, New York Stock Exchange, but the gamble was in shares, or as the Americans term them, “common stock,” and bonds were neglected. Furthermore, the New York money market became stringent, call money was rising to as high as 10 per cent, and the bank rate even now is 5 per cent as compared with the Rank of England rate of 4) per cent.

The London underwriters bung on to their stock and now bare the satisfaction of being able to get rid of some at a premium. The New York syndicate. or some of them, apparently could not, or were unwilling to hold on to the Commonwealth bonds and so hawked them in London at 89 dollars or below the price paid for the bonds. It is tiiis fact that is resented in Australia for such procedure depreciates the credit of the country. It m not likely that the Commonwealth Government will again venture on the New York nui rlcet, more especially as London is now in a position to absorb colonial issues. An authority explaining the New York position, says that the actual reasons for the fall in the bond market in America arc due to the beginning of the election campaign which Invariably brings in its tram dearer money conditions and usually lasts until the new Parliament has been proclaimed. This may be correct, but New York is too speculative a market for colonial loans. FROZEN MEAT MERGER. At the last meeting of the Farmers’ Union a resolution was carried advising that it would ho desirable to bring about a merger of some of the cooperative freezing companies. I lie desirability of such a movement has long boon the subject of discussion and is not likely to go beyond that. From the Argentine conies the report ot a pending merger of the Smithfield am! Argentine Meat Company, the River Plate, British and Continental Meat Company and the Campania Sansmona Carvers Congelndas, with the object ot pooling percentages of shipping space and time, materially reducing the cost of expansion. ff the scheme is approved the individual expenses ol each company would he materially reduced, inasmuch as arrangements would lie made for a factory to treat chilled beef, another Continental, and a third slaughter for home consumption, thus eliminating numerous highly paid employees, and separate staffs lor buying, inspecting arid shipping, etc. The merger means a combined shipping percentage of 22* per cent, which is what practically the big companies were accorded after the conclusion of the meat packers’ war.