The Bay of Plenty Times WEDNESDAY, AUG. 16th, 1939 MYSTERY LOAN

Bay of Plenty Times, Volume LXVII, Issue 12821, 16 August 1939, Page 4

The Bay of Plenty Times WEDNESDAY, AUG. 16th, 1939 MYSTERY LOAN

The New Zealand loan for £16,000,000, issued in London, in ‘C'onnection with a maturity loan, appears to be surrounded with a great deal of mystery. The loan was not underwritten in the usual way, but the Bank of England, which acts as loan agents for the Dominion, called upon the “Big Five” Banks to help in the matter. It was reported some time ago that the banks and discount houses held about 50 per cent, of the maturing loan and Avould convert into the new stock. The banks have apparently done so, but the discount houses have been unwilling to do so, becaiise the banks were not prepared to accept the scrip as collateral for call loans, or day to day loans. It may be stated that the discount houses deal in bills of exchange issued in all important countries in connection with trade. The volume of these bills varies from day to day, and almost every day the discount houses must borrow "from the banks, the loans being from day to day or at call, and must deposit collateral security. This special New Zealand loan is not regarded as sufficiently secure for the banks to accept, hence the discount houses find the scrip of aio value to them notwithstanding the high rate of interest, and the special conditions of the repayment of the loan. The bank refuse to accept the scrip as collateral security because the London funds of the New Zealand banks are much too low for safety. The Bank of England has acted rather generously towards the Dominion for it is reported to haye guaranteed £10,000,000 of the new loan, and did so without making any charge. The guarantee was equivalent to underwriting, and underwriters are usually paid a commission varying from to 2 per cent. Apparently, the banks have been left with half the issue, and the greater burden will fall on the Bank of England. Dealings in the scrip opened on the London Stock Exchange at a premium of 2s 6d. The issue price of the loan, was £99 per cent., so that the Stock Exchange price reported was £99 2s 6d. The fact that a premium was paid for the scrip is all to the good. The details that have now come to hand should dispel the belief held by some people, that the British Government was responsible for the harsh terms of the loan. It was entirely a matter between the New Zealand Government and the bondholders, and Mr Nash quite rightly sought the advice of the Bank of England and acted on that advice. The terms, although rather harsh, were not more severe than were warranted by the circumstances. It is satisfactory to know that this trouble is ended for the time being, and it is also crystal clear that steps must be taken to build up sterling funds, and restore the credit and good name of New Zealand in the London money market. There has been so much real mystery regarding this loan that one cannot help wondering whether there are other undisclosed terms attached to the issue. Some believe that there are, but these can only be guesses. However we must be thankful that a difficult matter has been settled, if only temporarily, and it is no exaggeration to say that, had it. not been the advice and kindly help of the Bank of England, we would have been in serious difficulties. It is obvious now that the finances of the Dominion must be closely watched, if we are not to be placed in a similar position when the next loan falls due. THOUGHT FOR THE DAY BETWEEN the great things that we cannot do, and the small things we will not do, the danger is that we shall do nothing.—ANON.