Warning for board

Press, 10 December 1981, Page 10

Warning for board

The Christchurch Drainage Board might face a shortage of local-body loan finance next year. Only limited cash from local-body loans would be available, the board’s underwriter, J. S. Sattherthwaite and Company, has told the finance committee. The warning came in a copy of a letter the company had sent to the Minister of Finance (Mr Muldoon). The letter said that the maximum interest rate of 13.5 per cent that local bodies could pay was now unacceptable in the market when compared with higher rates offered through the latest Government Stock and Dairy Board issues. The return on the Government Stock issue was 14.9 per cent for a four-year term and the Dairy Board’s offer carried a maximum interest rate of 15.25 per cent for the longer term. Investors who had tradi-

tionally put their money into local-body loans were being attracted’ away by higher interest rates. “Traditionally our firm has had the support of a team of sub-underwriters, but over the recent months that support has dwindled to the stage where, if the situation is allowed to continue, the National Provident Fund will be virtually the only contributor to local-body loans," the letter said. The Government’s recent increase in its Stock rates had had a detrimental effect, in attracting new funds for local-body issues. Unless steps were taken to attract the traditional supporters of local-body loans back into that market the company would have to tell its clients that it would be able to provide only limited help, the letter said. Board members expressed their concern about a possible shortage of finance during the early part of next year. Mr R S. Leach said he was particularly worried

about where the funds for capital works in the first three or four months of 1982 would come from. The board had written to Mr Muldoon suggesting that a special subsidy might be granted for Christchurch. Although Mr Muldoon’s reply had been non-commit-tal there was still a good case for a special subsidy, Mr M. J. Dobson said. The costs of drainage, especially stormwater drainage, were higher for Christchurch than for most other areas in New Zealand. Accounts Board members discussed the installation of a computer to expand the board’s accounting system. Mr Leach said that although the purchase of a computer might require a lot of money in the first and possibly the second year the cost was more than saved in subsequent years. The accounting system will be reviewed by a firm of chartered accountants.