£10,000 LOAN.

Shannon News, 19 August 1927, Page 2

£IO,OOO LOAN.

AUTHORISED BY HOROWHENUA POWER BOARD. TO BE RAISED FROM PUBLIC TRUST OFFICE. Assent given by the Power Board yesterday to a proposal to raise a loan 'of £IO,OOO at 6 per cent., for a term of 20 years, from the Public Trustee. The Chairman, in commenting on the negotiations, explained that there was an advantage at present in raising money in New Zealand instead . of in Australia. The Treasurer presented the following report regarding the proposed loan: — "During the week of tho Power Board Conference, the Chairman of the Board, and the writer, visited several of the money-lending institutions with regard to the Board's proposed loan of £IO,OOO. It was found that some of these institutions had no funds avail? able at present, and with some the engagements ahead ran into many months. It was found that the Public Trustee would find the money required upon the following terms (provided of course, they were satisfied with the legality of, and the security for, the proposed loan):—Amount, £10,000; Interest, 6 / per cent.; Term, 20 years; Sinking Fund, 2 per cent. The Public Trust Office would perhaps on request make the term 36i years with a sinking fund of 1 per cent., but undoubtedly as lend- | ers they prefer the shorter term at the larger rate for a sinking fund reserve.

"The Board has a loan of £BO,OOO from the A.M.P. Society which will mature in 1942. As a sinking fundof 1 per cent., only has been establish-

ed in connection with this loan, there will be a portion of the loan to raise at maturity. The loans from the Government Life, amounting in all to £IOO,OOO, are all instalment loans, and all principal and interest is paid off in 36f years. "For this small loan it was thought that a 20 year term would be long enough and that the Board's business should warrant the payment of a 2 per cent. sinking, fund. The lending Board of the Public Trust Office has agreed to advance the loan on these terms, and it is now for the Board to confirm the proposal, or to take such other action as it may deem best. For a loan of this size it is doubtful whether, the same could be raised anywhere in New Zealand under (5 per cent. Under certain conditions until recently, and perhaps even now, Australian money could be obtained at 5$ per cent. There is, however, not as much saving in the Australian-raised loans as might at first sight appear. With brokerage and exchange added thereto, the saving through the lower rate of interest soon vanishes." ADVANTAGEOUS TERMS.

The chairman explained that there, was an advantage in raising the money at 6 per cent, in New Zealand instead of at 5| per cent, in Australia, owing to the saving in brokerage and other charges, at the present rate of exchange. The suggested terms of this loan might at first sight appear very high—namely, 6 per cent, interest and 2 per cent, sinking fund—but there were other factors connected with the loan which. had to be taken into consideration. Firstly, the Board had £IOO,OOO from the Government Life Insurance, on a table mortgage basis, for a term of 36$ years. The Board also raised £BO,OOO from the A.M.P. Society, with 1 per cent, sinking fund, maturing in 1942. The finance committee had felt that it would be as well, seeing that the propooed loan was only for a small amount of money, that if should be short-dated —hence the high rate of sinking fund. He did not think that this would have any bad effect on the finances of the Board. It would probably be necessary, after the present session of Parliament, for Boards to have a depreciation fund. The question of what fund this Board would establish would depend on the stability of its lines and how its loans were arranged. If the loans were raised advantageously, they would only need to establish a comparatively low depreciation fund. The .chairman added that money could not be picked up just anywhere at present. The Australian insurance companies had no znouey to lend just at this time. In New Zealand, the Government Life was not disposed to take up any more debentures such as this Board had, and he had been told that these were only returning the Department about 4$ per cent., owing to the debenture tax and other costs. The Public Trust Office, however, was not affected quite in the same way.

The adoption of the report was moved by the chairman and seconded by Mr Gunning, who said that it was a sound financial proceeding to take this * money on a short terin.

Mr Seifert said he thought that the Board- should accept #ie loan on the terms set out by the chairman. If they did not go in for this sinking fund, they would have to establish a heavier depreciation fund. Mr Vincent: What would it cost to raise this loan!

The Chairman: Nothing, so far as we know, except the expenses of the investigators going to Wellington, and so forth.

The secretary stated .that the Board might have for the printing of the debenture coupons.

The chairman stated that this loan would be more than enough, with the other money coming in, to carry the Board over 12 months, with the amount of work they had in sight. In raising loans from the Public Trust Office the cost was very light. The Public Trust had its own solicitors, whereas other lenders put the loans through legal firms. The cost to the Board of raising the loan of £40,000 from the Government Life was about £75. The £BO,OOO loan had cost £175 to raise. The secretary stated that the Board could not get Australian money without paying brokerage of one per cent. Mr Barber supported the chairman's view that it was advisable to raise a short-dated loan. Mr Vincent remarked that the difference between one and two per cent, sinking funds in this case was only £IOO a year. v«*{ The report was adopted, and the necessary resolutions were passed authorising the raising of the loan.