THE BIG LOAN.

Dominion, Volume 4, Issue 1038, 30 January 1911, Page 4

THE BIG LOAN.

—. —* • i .WHAT IT REALLY COST, TWO ISSUES COMPARED, A correspondent writes to say that hfl disagrees with our statement that ths terms of the five-million loan was not so' successful, from New Zealand's point of view, as the terms of Straits Settlement loan. He asks us to show where the Prime Minister is wrong. The Prima Minister, it will be remembered, quoted the Straits Settlement loan of ,£2,750,00® at 3! per cent., issued at 951, as less suo cossful than the New Zealand loan. The proof of what we said is simpler enough. The Straits Settlement issue; . was a straight-out issue of inscribed stocK at 951-; The interest which it yielded; investors was given by the London; "Economist" as .£3 13s. 3d. The New Zealand issue was a debenture;! issue. Those investors who took up thai bonds intending to redeem them at par l would receive, as- has often been shown. I over M per cent, on their money. In respect of the money involved in these cases, that is to say, New Zealand, had' to pay more for its money than _ thq Straits Settlement administration- did. The most favourable case, from Prime Minister's point of view, -would- be the case in which the whole ,£5,000,000 was taken up and converted at Those who paid in full for their bonds* and converted-on or-before-December 1, were to receive a fnll six months' inters est on January 1, 1911—a month laterJ Suppose this, which the Government mostj desired, had happened. The Governments' would receive in cash for each bond o£ .£IOO the sum of ,€97 10s. (which is ,£95 10s., less .£1 underwriters' fee, and cjm penses of flotation, • which we shall nof( count just now). Then, on January lj there would be paid to the investor £li 155.,. as six months' interest, and as thei money was out only a month, 5-6ths ofj this was direct bonus. The net cashil received for the bond would, therefore, be £97 10s„ less 5-6ths of ,£1 155.,! !or -~91 Is. In respect of tho whole loan,; the cash received would be 50,000 timeal this amount, or .£4,802,500. For the bonds j |on conversion, stock amounting to ,£5,100,000 would be issued. That is to' say the cash received for the issue o£ ,£5,100,000 inscribed 3| per cent, stools ■would be ,£i,802,500, which makes thej real price, of the stock 94 l-6th. At- its best, therefore, the recent loan; was an issue of inscribed 3i per cent, stock at 94 l-6th, or le3s than the Straits Settlement figure, even if the cost of underwriting that loan was 1 per cent,' New Zealand would then be paying tween .£3 14s. and £3 15s; for its money,