THE LOAN ISSUE.

Taranaki Daily News, Volume LV, Issue 52, 19 July 1912, Page 4

THE LOAN ISSUE.

LONDON CRITICISM. By Telegraph—Parliamentary Reporter, Wellington, Last Night. The London correspondent of tils' Post, in a letter published to-night, says,, under date June 12: —"Some of the more' outspoken papers have got their breath again, after being stunned by our £4,500,000 loan for two years, and they are beginning to make unpleasant remarks on New Zealand's financial methods. It seems to he generally recognised that there is a real financial stringency in New Zealand so far as the State is concerned, and we are let down lightly on that account.

The Times says that the effect of the New Zealand flotation on high class investments was quite remarkable. The market did not like it at all, not only because the amount is inconveniently large from the point of view of capitalists, who already hold many similar issues, but because the yield is so high as to make existing colonial securities look dear. Many people are beginningto think that there has been enough of these issues of short-dated debentures. That the issue is nevertheless the best way for the New Zaland Government out of a difficult position is probably true, but some very good judges are of opinion that it would have been better finance to issue a long 4 per cent, loan at a trifle under par, than to pay possibly a good deal over that rate for the chance of renewing on better terms in two years. He must be a very sanguine man who can feel confident that the state of the money market? and of New Zealand finances will be such that that State will be able to borrow at less than 4 per cent, when these debentures fall due. There is no use crying over spilt milk, however, and if the meaning of the issue is fully grasped by everyone good may result, for there is no doubt that the terms of this loan more nearly represent the facts as to the credit of New Zealand and of some other countries than the ideas hitherto prevailing in official circles on that subject. To. awake out t>f a fool's paradise is disagreeablei, but to go on sleeping in it is to court trouble.

"The Pall Mall considers that money is so cheap that New Zealand might just as well lmve raised the loan in a more? permanent form. It doubts whether theconditions will be any better two years hence, since the tactics of the Home Government cause investors to scrutinise colonial pretensions as narrowly as our own, and raises suspicions which do not help our colonies even with legitimate forward policies. To those who are looking for a satisfactory per cent. lock up for a couple of years the issue seemsto appeal. We cannot but think that the advisers of New Zealand have made a mistake in not adopting a more permanent form for the loan. It had been pointed out that New Zealand i.s really paying about £4 los per cent, for this four and a-half millions. To the interest, £7 per £IOO for the two years,, must be added, the. £ 1 premium on repayment at par, the £1 underwriting commission, and, say, 10s for discount on the instalment paid before due date, altogether £0 10s, or £4 los per year.. It will be remembered that when' last New Zealand raised a large loan the underwriters were left with more than 90 per cent, on their hands. Conditionswere supposed to be much better now; yet we are told that the underwriters: are holding 85 per cent, of the amount underwritten.

The Morning Post says that it seems a, bad result, but the ordinary investor could not be expected to take much interest in a security with so short a life, and it is rather surprising that theissue should have been offered publicly at all. Many underwriters,, no doubt, are willing enough to take up the debentures and keep them, which explains the fact that m spite of the result of the issue they are quoted at a small premium.

The Standard considers the issue (merely, proves the terms which the money market is now justified in exacting for short term obligations which are so frequently sought. The financial Times considers the result an indication that the market for new issues of an investment character is overfed."