CITY CONVERSION LOAN

Press, Volume LXXVII, Issue 23351, 10 June 1941, Page 8

CITY CONVERSION LOAN

Board Withholds Sanction * • MORAL OBLIGATION TO DEBENTURE-HOLDERS Because the Local Government Loans Board considers the Christchurch City Council has "undoubtedly a. moral obligation to consider the interests of the holders of its debentures who have already agreed to reduction in interest, and have had their investments disturbed by the conversion operations in 1934,” thfe board has referred back to the council its application for sanction of a £688,595 conversion loan. The council on the recommendation of the finance committee decided last evening to communicate with present debenture holders and offer them the right to convert at £3 12s 6d per cent. The Loans Board, in its letter to the council, said it fully appreciated the aim of the council to .reduce the annual charges on its loan indebtedness, with consequent benefit to the ratepayers, and was sympathetic towards its endeavour. In considering The case the board was of the opinion that while the legal opinion might justify the course the council had the moral obligation already referred to. Continuity of Investment

"A somewhat similar situation arises in the case of Government loans both in the United Kingdom and in the Dominion, where the reservation of a right of repayment during a stated period prior to maturity is a common condition attaching to loans when issued,” stated the board’s letter. “In such a case, however, the exercise of the right is almost invariably associated with an offer to the existing holders to convert their securities into new securities in a _ loan on terms approximating those obtainable by purchase of securities in the open market. “It appeared to the board that the opportunity of continuity of investment thus afforded is one of the main factors in the establishment and maintenance of stable investment conditions, particularly in the gilt edge and first-class local body field, and in consideration of the exercise of. earlier redemption such as is Contemplated by your council, regard must be had not only to the question of the immediate or future savings obtainable, but also to the wider issues involved. "Any precipitate action on this occasion may adversely affect some future conversion or new loan operation. 'ln these circumstances, the Loans Board was of the opinion that the proposal warranted further consideration by your council, and resolved that it be referred back accordindy ” Mr J S. Satterthwaite, who conducted the negotiations, for the council, advised that the Bank of New Zealand was prepared to take up £200,000 of the loan, with settlement at December 31, 1941, interest to be at the rate of £3 12s 6d per cent, pel annum, the provisions regarding debentures already confirmed by the council to be abided by If the balance of the loan is not fully subscribed by your present debenture holders the bank is prepared to consider increasing their holding over and above the £200,000 already referred to at the same rate of interest of £3 12s 6d per Ce Cr. M. E. Lyons, chairman of the finance committee, said that it was desired by the committee, and, ne thought, by many, of the previous council, to give if possible an opportunity to the debenture-holders to convert y their holdings. The Local Government Loans Board desired that the widest possible opportunity should be given to holders to convert. The ultimate saving to the ratepayers would be £28,000.