COLONIAL BORROWING.

Press, Volume LX, Issue 18266, 27 December 1924, Page 12

COLONIAL BORROWING.

i N.Z.'S MODEL PROSPECTUS, j DOMINION'S GLOWING TALK. TlOlf Ol'S o*s COM*S?o*"OS!rr.> I LONDON. November 4. ! Mr -J. M. Key;>:> ha» Iwn operation and iti"se»iitence> OT iho . Cc-lonial >toc"< A;: 1900, «bich con- : rVrs the status of trustee | on Colonial conforming with cerj tain easy formalities oi' a. legal rat.'ier I than r. business type. Mr Keynes ; thinks the A:t unduly stimulated : borrowing by the Dominions. v\hivii : have been able to obtain money <>a ! easier terine than Home municipiUiue* ■ f'f the first rank <>r &:ich bodies as ti:e Fort ot' .London Authority. 31 r Keynes : suggested that- in order to remove the : temptation to Colonial over-borrowing j and to widen the scope tar trustee in- ' vestment in Home industry, the w nole> ! of the existing Acts regulating; the oniI ploy-men t of trust funds should tie rej pestled, and that no new issue, save j with a British Government guarantee, 1 should be rdd-ed to i-h<- trustee !-.<i » it!i- ---! out a special license from the 'lrea>ury. I '"'ln other quarters the methods at- | tending the flotation ci Colonial loan-; j have become the subject 01 warm ec-n----t-roversy." .says the "oioek Exchange Gazette." ; 'Complaint is made of the scantiness of the inionmstion given in the prospectuses of the majority of recent issues of the sort. 'lhis year nine Colonial loans have Leen floated in London, and 111 eight the maximum ot ]>ertine;it financial information given related to the amounts of the sinking '."Tlnds and of debt previously repaid. In five coses even this minimum was not vouchsafed. The bright exception afforded a delightful contrast. The New Zealand prospectus of May was a model of ample and yefc wnci.se statement. It becomes a pleasure to lend to a borrower which, after .•? full disclosure of itb financial situation. ;s able to round off a prospectus condition with the claim that 'these figures indicate the prosperous condition of the Dominion and the economies effected in its financial administration.' There was nothing in New Zealand's record to compel the Government to cultivate tiie goad graces of investors with more assiduity than'other.oversea borrowers, quite the reverse. The Dominion had a giowing tale to tell, and told it with legitimate pride. Unintentionally, no doubt, New Zealand has set a standard of prospectus specification by which subsequent documents of the same sort might fairly be judged. And the fact that the recent Queensland prospectus wafi of the old almcst brazenly reticent type is largely responsible for the agitation in favour of a more communicative style of prospectus." Not unnaturally the impression prevails that the barrenness of information in Colonial prospectuses is a consequence of knowledge that money will I>e forthcoming for a trustee stock no matter how much has to be taken for granted in connexion with it. To see how the prospectus of to-day compared with that prior to the passing of the Colonial Stock Act in 1900, the Stock Exchange Gazette took at random a batch of similar documents of earlier date. The period happened upon was one of four weeks between May 6th and June 2nd, 1885, when in succession Queensland, Victoria, New Zealand, and South Australia sought loans of from £1,500,000 to £4,000,000 in London. All were offered for tender, "and here we find the genesis of the scanty and formal prospectus as ■we know it to-day. A tender loan rvresupposes the interposition between the borrower and the investor of a professional element equipped to judge the finances and credit of the applicant for funds. When the system of direct appeal to the public supplanted that of tenders, the stereotyped form of prospectus was retained, and with some reason. For the tenderers of old: became the underwriters of the present time. Without their aid no Colonial loan could be with any prospect of success. Of this we had an excellent illustration during the years when Queensland was at loggerheads with the large body of British capital embarked in the pastoral industry in that State. Faced by the disapprobation of the banks, and issuing houses, Queensland!, even with the trustee privilege at her back, dare not try her fortune in London, and had to pay through the nose for accommodation in New York. This proof that between a borrower suspect of disregard for contractual rights and the investor there is a barrier serves as at least a partial justification for the retention of the old reticent type of prospectus. At the same time we think the sponsors of British oversea loans would be wise to relieve themselves of an implied, if not actual, responsibility by requiring Dominions and States to

fellow, so far ;i> they van. the good I example set by New Zealand. J "'lnvestors are reasonable people, and do not expect other countries to equal New Zealand's achievement in the lait completed financial year of paving off i'i .(jt>o.ooo ot debt and providing <; 1.000.000 for capital works out of surplus revenue. As ; i cuuit-erblasfc w the nationalising tendencies of our | Labour Party, the unremunerativo ' character 01 some services .and underI takings conducted by St-at-js ol the Commonwealth has been given prominence coincident-ally with this discussion of the need for itiller disclosure ill Colonial Joan prospectuses. We hope, the I two questions will not become interconnected. There are jnany services which a sparsely populated State like Queensland must do without altogether unless they are undertaken by the State. "csoine 'will always he losing tions. others, like so many priva*; enterprises in this country at present, must inevitably reflect ;ho world-wide depression. In any c;ise we, for our part, steadfastly avoid the trap (into which that sturdy individualist. Lord Inchcape. has incontinently fallen) of taking 'a member of the Opposition' in anv country as of necessity an unbiased critic of current policy. Incidentally, it is surprising that a review of Queensland's State services should specify the profit on railway refreshment rooms, and be silent as to profit or loss on railway working. It seems also an odd coincidence that a loss of £1703 on retail stores should be balanced by an exactly similar profit on butchers' shops. " Partial statistics from sources not imnartial affect neither Queensland's- credit nor the ease for or against nationalisation. Yet Queensland's credit is not so unqualified that the State can afford to shelter behind the Colonial Stock Act, and the Government would be well advised, on the occasion of its next appeal for funds in London, to furnish in the prospectus no Ims information than was required bv the sponsors of the loan in New York."