FORESTRY BONDS

Hokitika Guardian, 27 March 1930, Page 7

FORESTRY BONDS

POSITION AS INVESTMENT. Forestry Bonds ! What are t-licj n orth ? Although the term lias a wide application, for a number of companies havo issued forestry bonds and arc still offering thorn, the purpose of this article is to deal with those issued by te pioneers in this field, N.Z. Perpetual Forests, Ltd. Because the bonds of one company may be deemed satisfactory that -is not to say all forestry bonds can Ibe recommended. Tho bond is just as good and no better •than the organisation which stands behind it. Each com pany’s issue must therefore be considered by the investor separately and p..rely upon its merits. N.Z. Perpetual Forests first started selling bonds in 1925, and through its selling organisation, Smith, Wyllie and Co., has to date dispensed ci £3,400,000 w'rth of bonds. This is an immense sum of money to be sunk in one form of enterprise in such a comparatively small country as Now Zealand, and under tho control of one organisation. The magnitude of the O'pefl’utirnis renders it essential that the whole business shall be carefully examined and constantly watched with tho utmost vigilance. The laturo of tile proposal put forward by "the company has been'such as to ap-

peal with special force to the “snnif man” rather than to the wealtliiei section of the community. The hard -working artisan struggling week by week and year /by year, yet still barely making ends meet, has listened eagerly to the assurance of the bond salesman that if he can only get bold of £2s—.paymqnt spread over four years—he can look forward to receiving £250 in 12 years’ time, or as an alternative £SOO in 20 years. Here is provision for himself and wife in their declining rears,/oi maybe a nest egg for one or other of the growing family. , iy Out in the country it has been the same; Wherever hard fyqrk and straitened circumstances •• Juire been accompanied as they so often aro with thrift' and seif-sacrifice the;,-; promises .of the forestry bond salesman have Jiftd a' wonderful pull. This,liras been tho case not only'in this country, but also .in Australia, Great . Britain and many Eastern'.countries. • The comjpaiiies bonds have been freely placed in South Africa, India, fdliina and Japan. With such a sprea*! of business the fair .name of this j ; : Dominion ,is 'directly involved, It a^ -has been actually suggested,' these bonds are 'fraudulent or even under suspicion, it is a; matter in which the New Zealand Government; should take action without' waiting for individuals ’to seek legal redress, THE BOND CONTRACT. The actual wording of tho undertaking given by the company-reads as follows:

“ N.Z, Perpetual Forest, Ltd., contracts to plant with softwood trees an area equalling one net undivided acre for each bond sold prior to the closing : of this issue, and to care fqr the forests under properly qualified manage-

ment, either until the forests are realised at the direction of the bondholders’ trustees, or for a period of 20 years from the planting of the seed, whichever period is the shorter period.” Further, details are supplied, but the above comprises the esentials. These outline quite clearly the obligations of the company. Decently the writer was shown over the company’s forest areas, and the results of that inspection have already been published in tlie papers. In Brief, they demonstrate quite clearly tliat the company has and is thoroughly fulfilling its obligations. . The land has been bought as promised, the trees are already planted and the provision for maintenance appears to bo ns thorough as human ingenuity can deviste. In this respect the company seems to have “ gpno the limit” in its effort to give the holder of tho bond a fair run for money. “ Perpetuals ” 'bona tides in this respect, appear to have been completely established when they appointed such men as Sir Herbert Matthews, one of the most distinguished agriculturists in Great Britain, Sir Henry Banvell, ex-Premier of South Australia, now South Australian AgentGeneral in London, and other prominent gentlemen. These trustees have the widest powers in the precautions they take on behalf of the bondholders, enabling them to oertify from time to time chat maintenance is being carried out- satisfactorily, and th&t,N;Z. Perpetual Forests, Ltd., is in a posi-. tion financially to fulfil its undertakings to'bondholders. HOLDING OUT HOPES.

So much for’ the actual wording of the bond. There is, however, something more. In its prospectus the company state:— “ Forestry experts are agreed that the .profits will be considerable, Rased upon investigation and the statements and calculations of experts, as under, we estimate the value of the crop at £250 per acre if marketed as pulp wood in approximately 12 years, or £SOO per acre if marketed as general timber in 20 years.” .This is clearly not an undertaking; not a a guarantee, but the bait of £250 in 12 years or £SOO in 20 years, is dahgled before the public, and the onus; .is',, on the ..'company 1 ,to 'justify it,', which:;,it'!sets putito. 16 with facts "and’''figures,, i! At) this point the position is\ one of an /ordinary business venture. 1 ,., All,''flotations are speculative ; • some. more than others. Jt is all a question .of -degreCv When the .bonds were\firsf‘ offered, to the public critics might well, Mve. beep excused 'for : adopting a cyiiical attitude. “ Who can tell,” they'•> asked,, “what the trees iviH'be like in\ ( 12 years or 20 years? ” to say frothing of. the still mope speculative s point,' “ What will timber be worth at'that time ” - , , , “ Where will the company get the land cheaply bnough to make the project sound economically?” " FATHER TIME HAS. HELPED. To-day, however, the position is vastly different. Cheap land has been bought, the trees have been ' planted and some with five years' growth' Are well on tho road to maturity. In other words, a bond holder has tangible evidence of where his money has gonC, which is more than can be said in the oase of many companies that have been promoted within the same period. .Moreover, the passing of the five years has eintrhasised rather than diminished the grounds upon which thq company based the hopes for generous returns to bond holders. The worldwide demand for pulp growing timber has steadily increased and experiments on a commercial scale have demonstrated that pinus insignia, which comprises ninety per cent of the company's plantings, is eminently suitable for manufacture into newsprint and wrapping papers. From the point of view of sale as ordinary timber pinus insignis is a much more marketable commodity than it was. Columns could be written upon the present position of the timber and the pulp industries so far as it affects pinus insignis, sufficient be it to say that the outlook is promising.

BONDS APE SPECULATIVE. Forestry bonds, as issued by N.Z. Perpetual Forests, Ltd., are still definitely speculative. No one can say with positive certainty what financial results will accrue from those millions of trees which are beginning to feature the landscape in the Puta ruru- At i iimur i-Ta upo country. The trees aro growing rapidly, even at a greater rate than was anticipated, and already the trustees are investigating the marketing aspect. A few years will answer many queries.' That public' opinion is viewing the prospects' more confidently is shown ‘by the fact that ibonds which have, through forfeitures.or any other reasons, become available in respect to areas planted in the past readily command a premium. Tlius 1924 bonds, representing areas which now have five-year-old trees thereon, are selling readily at £45. The company claims to use every possible means to assist any bondholder who defaults in his payment to keep on the register. Meanwhile it may be said definitely that the company has honoured its bond contracts, and that if has reasonable grounds for the statements made in its prospectus as to the probable financial results.