THE HARBOR LOAN.

Taranaki Daily News, Volume LII, Issue 142, 13 July 1909, Page 4

THE HARBOR LOAN.

REPORT FROM MESSRS. CONNETT AND lima. A special meeting of the New flymoutn Harbour Huard was held yesleriUiy to review the report of the ctiairunin and treasurer, Jiessrs. J. B. (Jbnnett, auu Newton King, wlio nad been ou a mission to Lonuon to nuie tlie loan autnonsed by poll of tlie ratepayers. iheru were present: -Messrs. U. li. Lonnett (chairman), Newton King, 0. vt'aru, lc. l'nee, L. a. Wilkinson l>. J. liugiu's, and K .Maxwell. alv, j. .UcCluggage forwarded an apology for •absence. .\lr. \\\ T. Weils was absent on leave. thanking toe delegatus. I rior to tiie reauuig oi the iiiumtes, Mr. Maxwell, who had been aetmgcnairman during Mr. Connett's absence, said lie thought this an opportune lime lor uie Hoard to extend a welcome 10 .uessrs. Louneti and King on their reLurn, aiiu 10 place on record its Uia~lks I.u' uiese gentlemen for tlieir servicis given in connection wan the raising ui the £275,UU0 loan. They nad gone Home at very great personal loss "and inconvenience, and hau given tiieir time and best services 111 carrying out tne work oi the iioaru. it was well, iie said, that the district had people who could and were prepared to give their time when puolie matters o{ tins kind cropped up. Jie moved a vote oi thanks.

Air. Ward seconded, and stated his pleasure at seeing the delegates back tale and well.

ALT. King said that perhaps it wuma be -is weu first to hear the delegates' report. The members might not be so ready with their t/hanks then. Mr. Maxwell said that whatever the nature of the report, or the members' reception of it, that could not alter the fact that the delegates were entitled to the Board' 9 thanks.

The motion was then put and carried unanimously. Air. Connett, ill returning thanks, said it was nice to know that one's efforts and sacrifice were appreciated. Personally, he had been told that t'n;y had had only a pleasure trip, but ,t had been anything but a pleasure trip to Mm, and Air. .lung would doubtless say the same thing. Irrespective of any loss or inconvenience he might have sustained, if the Board gave him £SOO he won't undertake the trip again. He didn't believe he could get througu another. The conditions oi travelling had been very unpleasant. They had been nearly frozen going Home, and almost roasted coming back. Air. King very briefly thanked his colleagues tor their kind expressions of

opinion. AIR. CONNETT'S REPORT. The chairman, before recounting tne experiences of the deputation in London, referred to the positiou 111 wnicti affairs stood prior to their leaving the Dominion. Air. King and himseii had gone to Wellington, instructed by the Board, to find what terms were onoring in New Zealand for the loan. The best offer was 98, at 4'/, per cent, which would give 94 net, the charges being estimated at 4 per cent. This offer was from the Bank of New Zealand, and in making it the manager said that there was little likelihoua cl the quotation altering very much one way or the other, and the Board need expect nothing better. So lie called a, special meeting, and the aecuW to send Mr. King and himself to Loudon. Upon arrival they lost no time. They had introductions from Sir Joseph Ward to the leading financial people, and they were also able to consult me ,High Commissioner's office. The Baik of New Zealand agency in London merely repeated the terms quoted here. And although they consuaeu Jj.v-r.' well everybody who was worth co 1sulting, no one would look at the loan at four per cent. Scrimgeour's people said they could try it if the delegates ( insisted, but could promise only 02 or 93, if it issued at all. They pointed out that to place the Joan on the ma:ket at such a price would be bad business not only for the Board but .to the whole of the New Zealand securities. It would be far better, they urged, to issue at 4% per cent. The delegates went into the question very carefully. They were anxious to avoid a rate, and it could not be avoided if they issued the whole loan at 4y 2 per cent. They worked out, too, that the £300,000 at 4 per! cent, would realise less than £275,000 at 4% per cent. So they decided to reduce the amount if the loan, thus avoiding the rate. They got the same offer again—9B, with 4 per cent, flotation expenses. They stuck out for 102, and eventually brought the offer up to 101. They also persuaded the bank and the underwriters to reduce their charges, so that instead of the flotation expenses being 4 per cent they were only £3 per uul. This offer was thus £4 per £IOO ■ett'-t than they had been offered in the jJ">minion. The Bank manager advi iid them to - close, assuring them tney would not be able to do better, ii.it delay occurred from various causes. At one time, owing to the effect of the Turkish troubles on the money market, it was likely that the underwriters inight drop out, and they had nothing in writing. The bank manager interviewed the underwriters himself for he thought that had the delegates goni the dealings might have come to an abrupt ending. In the end they allowed the bank to complete.

A FALSE IMPRESSION. Concluding, Air. Connett remarked that at Stratford on Friday night he had been hotly assailed by a man who assured him, "Oh, yes, you've worked the Board very nicely. You've got a very nice pleasure trip, and now we have to pay the same as you'd have got the money for here." The same thing met them in the streets of New Plymouth—an impression that they had made no better,terms in London than had been obtainable in New Zealand. Ho understood that the Board had obtained from the Bank of New Zealand the actual terms offered in Wellington, and he thought that ,in fairness to the Board, to himself and to Mr. King, he thought that letter should be read.

Jlr. Maxwell said that on one occasion when lie was in Wellington with Messrs McCluggage and Hughes, the terms offered in London had been published. One of the inspectors ol tie Bank of New Zealand had assured him that those terms were precisely u.-i terms offered by the Bank in Wellington to Messrs Connett and King. M' 1 . Maxwell doubted this, at which tin' official seemed very much offended, ;;:.u read from a book to the effect of his previous remarks, saying that that offer (98 nett, 4y t per cent.) had iieen made "to one of your men," without mentioning names. That was why uc Board had asked for the bank to put its previous offer in writing. The letter, which he had just read, wa3 totally different to what he had been told.i He stated also that immediately upon leaving the bank building he had communicated this intelligence to Mr. Hughes. The chairman said he was very thankful that that letter had bequ obtained, for it would clear up a very important matter.

The secretary then road the following lettfcr, received from Mr. R F. Blundell, New Plymouth manager of tae Bank of New Zealand:—

"In reply to your letter of the 2St)i inst., I beg to advise you that the information conveyed to Messrs. Connett and King in December last regarding we proposed loan issue and the terms upon which it would probably , be practicab e to make it, was as follows:—-Our London office sugested tlmt the loan should

be for £250,000, and they stated that, in all probability, the balance ( £SO,DM) of the authorised amount could be arranged for later on when required, without it havin'g to 'be offered in London as a public issue. They recommended that the rate of interest should be made 4% per cent., the currency of the loa i to be 40 years, and a sinking luiid of one per cent, to be provided. The price that the loan would be likely to realise would depend very largely, of course, upon the conditions of the money market at tlie time the loan was to oe i issued, say, in April next, but their | opinion at\the present time is that a j minimum of 98 or 01) would be practicable. Tho issue expenses, including underwriters* commission (which cannot be avoided, as the loan must be underwritten if success»is to be assured), would amount to probably 4 per cent. Under all the circumstances, therefore, we think the Board might look to net £OS per £IOO for their 4y 2 per cent, loan. No definite arrangements can be made until the Harbor Board are in a position to proceed with the loan. When the time arrives to conclude terms we may be able to improve them somewhat, or, on tlie other hand, we may iind it impracticable to make terms as favoraolc as those indicated. It will all depend upon the condition of the market for the time being. We shall, however, do our best, if the business is entrusted to our hands, to obtain for the Harbor Board the best terms that it is practicable to get in the London market at the time the issue is made."

_ Air. King said the only official intimation they had had from the bank here was that all they could get was 08, to net about 04. They had previously reckoned the flotation charges at 2% per cent., but they jumped to 4 per cent. Members (thought St ionjly fair to Messrs. Connett and King that the Wellington office of the bank should be further written to concerning the matter. Air. Maxwell said it seemed to him that this bank official "had been trying to get one on to him." He haa certainly made it very clear to him (the speaker) that the Board had gained absolutely nothing by sending dciegai.es Home, and would have done just as well by dealing with the Bank in the Dominion.

MR. NEWTON KING'S ACCOUNT. Mr. Newton King said that both he and Mr. Connett had realised at the outset tlie peculiar position in regard to the bank, recognising that it would look awkward for the bank if they got better terms at Home than .had been offered here. So far as the Bank of New Zealand in London was concerned, he must say that they facilitated operations in every possible way. Before going further he would refer to a newspaper report of an interview with Mr. Wilkinson, to clear up a misapprehension. Mr. Wilkinson's remarks were to the effect that he had opposed any proposition to raise £300,000 at 4%, and that a compromise had been effected. The delegates had never submitted any proposal from London to raise £300,000, so there could havo been no compromise. Mr. Wilkinson said there nad been a compromise on the Board's original intentions. He had not meant to infer that a compromise had been effected between the delegates and the Boara. Mr. King said he didn't want tne ratepayers to get hold of an idea that he liad wanted to raise the £300,000 at a price that would have meant striking a rate.' Mr. Maxwell explained that when the delegates' cabled proposal to raise £275,000 came before the Board it was quickly seen that the object was to avoid a rate. The question that tnen exercised the minds of the Board was that any future Board inight, without further consulting the ratepayers, go and raise the remaining £25,1)00. Xhat they had endeavored to guard against. The explanations were accepted as satisfactory, and Mr. King proceeded. They found that the Bank of New Zealand in London had been advised of tlieir intended arrival. The manager assured them that tlie financial atmosphere was buoyant, and brought them in touch with Serimgeours, who had been instrumental in making the offer that the Board had rejected here. Mr. King dealt fully with the arguments used by the financier against putting a 4 per cent. loan on the market, and added that the firm was doubtful about handling it at 4 percent. .Then they wired the t offer to the Board— £275,000 at 4% per cent., for 30 year, net result 08, stronglv recommending acceptance. The Board refused to accept, and stated its preference for £300,000 at 4 per cent., net result 02. Failing this, the delegates were to make a temporary arrangement so as to pay off the balance of the old loan. This, Mr. King said, was pooh-poohed at Home as a very expensive and inadvisable piece of business. The delegates cabled out: "Have unsuccessfully tried four per cent. Calculation is incorrect. Four per ce n it. 03 will lie the equivalent 4% per cent. 101. Commission for underwriting is higher. Loans at, a discount are not regarded with favor. Opinion is unanimous our proposal more than equal net proceeds £300,000 four per cent. Arrangement cannot be made for flhort loan. If they are able to will be subject to same brokerage charges. Interest higher rates will have to be paid. Opinion is unanimous everything is favorable flotation. After carefully considering strongly recommend. Bank will not allow overdraft. Bank is getting nervous; want issue prospectus. Reply by telegram. When will you reply? Deposit can be made with Bank to pay interest at current rates. Harbor Joans are altogether different municipal. Westport, Wanganui, live per cent." Mr. King explained that municipal loans were regarded more favorably than harbor loans, the latter's security being more restricted. Some delay was caused at this juncture by a legal point raised by Scrimgeours as to the ability of tho Board to collect a rate, but the Bank's solicitor decided against them. The underwriters were cliary about New Zealand harbor loans, on account of a " black mark" entered against the Oamaru Harbor Board. Mr. King iemarked at this stage that the Westport Harbor Board's loan was issued just ahead of this one at 5 per cent. On April 13th the Board cabled accepting the offered terms, " on condition that the £275,000 must not be exceeded, and an undertaking that wc iv-Quce limit to £275,000 by Act this session. ' This telegram, the delegates considered, was really a cancellation of their authority, and in this they were supported by Mr. Govett, by the Scrimgeours, and bv the bank manager. They cabled the Board accordingly.

Mr. Maxwell said the Board naon't been able to grasp the meaning of that cablegram, ; i • ; Mr. King said the delegates had been sent Home with full authority, and the Board by declining the terms offered had withdrawn that authority. He had refused to go Home without a free hand. Continuing, Mr. King said that same cablegram had suggested using all net profits to pay the interest and avoid the rate in the.event, of future borrowing. The underwriters cventuauy agreed to issue at 101, on the assumption that existing bondholders would probably come to the rescue; but when time went by, and these nondholders could not be easily reached, they •began to repent. Having arranged Hie terms, and authority having been sent to thp "Board to have the debentures printed and scaled, Mr. King left for a few days in Scotland. Upon returning, ho found matters hung up on account of legal advisers' difference of ophion as to whether or not the debentures could be sealed in London. Several days were lost at this end over the business, and eventually the debentures were sealed here and posted to London in accordance with the instructions originally issued by the delegates. I Mr. Maxwell detailed the steps taken here, and showed that no time was lost over this matter. It was the bank's insisting on the rate being formally made that caused some delay. Mr. Price was of opinion that up till this time, when the Board's solicitor made a special trip to Wellington, the Board had done nothing to facilitate matters ov help the delegates.

Mr. Hughes said the Board had done all it could, but the other members were, like himself, thunderstruck at the price tlicv had to pay for the loan. BILL OF CHARGES.

Mr. King then submitted the following list of charges in connection with the raising 6f the loan:—

Telegrams to and from head office,

'£43 7sj expenses collecting sundry.' country cheques, 12s; postage oil allotment letters, £2; Scrimgeour's underwriting commission at l'/ 3 per cent, oil £275,000, £4125; brokerage on allotments under brokers' stamps, 14 per cent, on £244,1)00, £.012; Street and Co. for advertising prospectus, £392 0s sd; Paines and Co., for approving prospectus, £52 10s; printing prospectus, etc., £25 10s ad; stamps 011 allotment letters, etc., £l7 10s 2d; preparing ' specimen debenture, £2 2s; Scrimgeour's jcommission for obtaining quotation., etc., £<>B7 10s; bank's % per cent, commission, £OB7 10s—.total, £OO4B Is. Further estimated epenses:— Stamp duty at % per cent., £1375; -advertising bonds ready, £5; postages and expenses collecting cheques, £1 10s; printing endorsements on bonds, £0; printing coupons, say, £SO; stamping Stock Exchange documents, £1; fetching bonds from docks to and from Somerset House, £3; cables, £s—total, £1440 10s. Grand total, £BOO4 lis. Mr. King informed the Hoard that the loan had been negotiated with the very best underwriters of colonial loans, lie would like to mention that the Bank of New. Zealand had greatly reduced its charges in everything it had done. He had heard it said,, and b.v people who ought to know better, that the Bank had made a big haul over this, but they took only a quarter per cent. The delegates had arranged with ihe Bank for three weeks' accommodation, from May Ist till about May 17th, the bonds having been due on May let/out the bulk of the money unavailable till the later date. He had suggested that it would be a grateful act on their part not to charge interest on that, and that the Bank agreed to do. So the Board had no London overdraft t.n pay for, Mr. King went on to explain in detail the huge amount of .work that had been necessary. When they had first arrived in London .they had been assured by financial people that about 95, ttf iiet 91, was about the best price they could get. The highest price mentioned us probable was 08, lei's flotation charges. Xew Zealand borrowing had just been eubjccted to severe criticism by an influential paper, "The Investors' Keview," which had prophesied a great financial crisis in the Dominion. And that had injuriously affected the standing of colonial loans. Mr. Connett remarked, just upon the luncheon adjournment, that he thought they had done very well for the Board, having raised the price from 08 to 101, and reduced the flotation charges by one per cent. ■ EXPLANATION REQUIRED. Upon the Board resuming after luncheon, It was decided, upon the motion of Mr. Maxwell, to apply to the head office of the Bank of New Zealand at Wellington for a copy of the offer alleged to l.ave focen submitted to Messrs Connett and King in January last and repeated to Air. Maxwell in April. iMembers were agreed that there was a serious matter to be sifted. AVOIDIK'U a KATE. Mr. Maxwell then sketched the progress of affairs at this end. He explained at length the delay that had takeii place concerning the debentures, claiming that the Board had expedited matters to the utmost of its power. Tlie only delay that might have been avoided was that which occurred in dealing .with the offer cabled from London by the delegates. When that cablegram came, proposing a 4iper cent, loan, he recollected the statements made by Mr. King and himself, and by the Board members generally, that tlie loan could be raised at 4 per cent. All tlieir calculations had been based on that. The compulsory annual charges mentioned in their addresses to the ratepayers had been raised by the.inclusion of'a. definite sinking fund of one per cent., and members knew that that was going to strain .the resources' of the Board, Th.: last words he heard Air. King use before sailing for London were that "on no consideration whatever could they afford to borrow at 4 1 /, per cent!, for that would necessitate a rate, and 011 no account must there be a rate." He referred, of course, to raising £300,000. Then Messrs Connett and King had done their utmost at Home, and discovered they could not get the money at less than 4 1 />. The Board had never dreamed of such a price. The Board here was in a position of knowing what it could afford to pay, and they knew that the proposed reduction of the principal amount was to keep the annual charges within thei r means. But the Board "recognised that, having raised the £275,000, there was still authority to borrow another £25,000 at 5 .per cent., •«ith a one per cent, sinking fund. If that money were borrowed, there must be a rate, Now, he and Mr. King had assured the ratepayers tliat there would be no rate, and pledged their word The Bill had been accepted by the people, and the loan authorised, upon .those distinct pledges. The Board here felt it must make the ratepayers' position se cure. Some members of the Board might be in favor of raising the loan, for they were not pledged. But he and Ml. King were, and he felt chiefly concerned because had it not been for certain clauses inserted in tile Bill upon 'is recommendation the Bill would not have passed, All'. Hughes said that the credit for that was due to Mr. Marx. Mr, Maxwell said that, at any rate, after giving his assurance, lie could noli very well fall i n immediately with a course which left it open to a majority of the Board to impose a rate. Tliev owed a duty to protect Mr. Kind's pledge, and his own. lie had thought the Board should got an amending A'.'t passed to reduce the borrowing limit to £275,000 or that the Board should give a distinct pledge not to borrow further. They never doubted that they were doing the best thing., If tliev had cabled uack immediately, accepting the loan proposals, they ''would never have heard tlie last of it." Although lie way not even now satisfied with the terms obtained, he was not prepared to say the delegates could have done better. It was unfortunate for l.lie Board. The extra, price meant an extra £SOOO loss to the Board. But they had got tho very best terms obtainable. He had 1 houglit it would be very advisable to borrow temporarily for extinguishing the old loan, and in the meantime reduce the borrowing limit. Sir Joseph Hard had advised that the latter course would be. preli:.!".-' - J (<, borrowing, and ad sugge.s'ti ; t h e Jloard should never proceed to raise the reniainng £25,0(10 without a further poll. That seemed a good way out of the. difficulty. He lias quite satisfied the delegates had 110 idea of borrowing more now, but (lie lloard should put on record it had no intention of raising any move of the authorised loan until it could bear till increased annual charges out of revenue. He referred to the need for extreme care in all the loan proceedings, for ( Veil lion- some people were of opinion '-he Board was collecting a rate under the new Act. That was at the back of the Opunake t-ases the other day, when Some people resisted the rate made 12 months ago. He thought the Board should have made its arrangements for repaying the old loan before the Bill was passed, but there was a feeling, he knew, that if the Board was once given that money the ratepayers might not be ready to raise the rest for carryin** out works. Concluding, he said he knew that in the country there, was a. growing opinion favorable to the harbor, as people began to recognise that their interests depended 011 the harbor to some considerable extent. Any carelessness 011 the Board's part would have the effect of reversing that opinion. But so long as the ratepayers saw the Board exercising care concerning their affairs things would go on satisfactorily, and it would not be long before we had our freezing works at the haribor, a local line of steamers, and ocean liners trading to the harbor.

The chairman: I'm very pleased io hear that last remark'.

.Mr. Wilkinson considered the rate of interest aslced was far too high. He ackcd Mr. King whether it was not a fact that lie had estimated the loan would be raised at 4 per cent., and if he were not disappointed with the result.

'Upon Mr. King answering in the affirmative, Mr. Wilkinson asked why the delegates objected to him stating his own disappointment.

Mr. King said he had not objected to that, and had been perfectly' satisfied with Mr. Wilkinson's admission of the morning that the delegates had never pronosed a loan of ',-£300,000 at 4% per cent. >.

Mr. Wilkinson contended that the Board had made no real effort to nay off the old loan. That was where bad

I \ I 1 business was shown. The Board should j have endeavored to raise money to pay off the existing loan debentures as | they. fell due. Sot having done tliat, the Board sent its delegates with hands tied. Tho lenders knew the Board must have tho money, or make default. He was quite satisfied that the delegates had done well, and no One could ha-c , done better. He denied Air. Price's' re- , mark that the Board had done nothing ; to facilitate the loan. They had done i their best, and had not tried to tie it , up. or hang the matter up. But they . liad a- duty to the ratepayers who had elected some of the members and who 1 nad authorised the loan 011 the assu"- . mice that it would :bo raised at 4 per [ cent., and who would hardly like to see their representatives agreeing straight ! off' to pay 4'/ s . He recognised the va- , lue of Messrs Connett and King's work, ! and the great inconvenience that the journey had entailed oil tliein. lie , wouldn't have done it at any price. Air. Hughes said lie was convinced . that the delegates had tried their best, \ and he had every confidence in them. The financial arrangements had been a ; financial bungle—there was no "get out j ol it." He wished the Board had arranged the temporary loan, so that they \ could have waited for better times be- | fore raising the loan, probably at Z% or 4 per cent. ' Air. Connett: The colony can't get ' that.

Air. Hughes reckoned that All'. Thompson had been right all through. Mr. Price maintiined that the Board had not done inucli until they authorised the solicitor to go to Wellington in connection with the debentures, Tho Board could have accepted the offer at ihe first' Special meeting. But instead of .that Air. Wilkinson had a gentleman sent to Wellington to pay off the old loan. Then another was sent down to see about altering legislation. That was the way the time was wasted. The Board merely killed time. The meetings had been held in camera

iMr. Wilkinson: Quite right. Air. Price said it was as well, for had the meetings been held in open board, some of its members' would have been ■burnt in effigy. "You left clever men here when you went to London—clever men w r ho could do everything. King and Connett were nobody when they were away in London. The clever men could do the lot." The chairman maintained that thi memibers had (been quite justified in their 'expectations of raising money at 4 per cent., but tlie financial conditions altered. For his part, he believed it would not he long before the ratepayers, teeing the advantage of the improvements at the harbor, would be anxious to raise the balance of the loan. There w r ould be ocean steamers here very soon. Already the wharf accommodation was lit times' fully taxed, and on that very day a steamer had had to pass by on account of there lieing no berth available.

Mr. King said Messrs Maxwell and Wilkinson were quite right concerning the pledges to the ratepayers. Sir Joseph Ward had thought the loan would life obtained at 4, with a small premium. Just before they went Home lie had repeated that belief, but then, as the High Commissioner had stated, Sir Joseph wasn't in London. It was a cryinj shame that local bodies should ue put to all this expense.' If the loans were guaranteed by the Government a saving o„f from % to % percent, could I.e made. Air. Reeves, then Agent-Gen-eral, had made the suggestion to ,Mr. King when in London eight years ago, but Mr, Seddon had refused to take it up. Although he and his colleague had been disappointed, he didn't believe there would be anything better offering for some time. English people were not Satisfied with 4 per cent, investments. And it they had to raise the loan 011 the coming year's balancesheet, they wouldu't get the money at 0 ,per ce7it., on account of the great shrinkage in revenu.e He remarked also that the expenses of the trip would be about £4OO, the amount Allowed. Mr. Thomson was wrong for once, for lie had estimated the expenses at £2OOO. The Board Tose at about 3 p.m., to reassemble for the ordinary meeting o Fnday next.