LONDON LOANS

Dominion, Volume 23, Issue 159, 1 April 1930, Page 10

LONDON LOANS

RESTRICTIONS EXPIRE NEW FLOTATION SOON New Zealand’s undertaking W year with respect to London ioans automatically expired yesterday, and from to-day the Dominion will be able to resume normal borrowing operations on the principal overseas money market. The restriction was self-imposed. In May, 1928, to meet portion of the requirements for the financial year which ended on March 81, 1929, the Reform Government borrowed £5,000,000 at 4$ per cent at £94/10/-, which represented a return to investors of £4/19/8, and a cost to the State of £5/3/5. Under normal circumstances the next London loan would not have been raised until about May, 1929, but in September, 1928, advice was received from the Government’s financial advisers in London that the money market was likely to harden in the near future, and New Zealand was recommended to borrow at an early date against the requirements of the following financial year—that which ended yesterday. Decision Deferred. As a general election was in progress when this information was received, the then Minister of Finance (Hon. W. Downie Stewart) decided that he would not be justified in determining what action should be taken, preferring to defer consideration until the result of the election was known. The Government was defeated, and it was left to the incoming Minister of Finance (Right Hon. Sir Joseph Ward) to say whether the advice of the London experts should be acted upon. Sir Joseph came to the conclusion that it should be, and, accordingly, on January 8. 1929, he raised on the London market a loan of £7,000,000 at 4} per cent, at £95, the yield to investors being £4/16/5, and the cost to the State £5/0/1, which is cheaper than the cost of any other loan raised by the Dominion for some time. Saving to Taxpayer. Justifying his decision, Sir Joseph Ward stated, in his Budget reference to the matter, that with the rise of the bank rate and the general situation that developed in the money market, a higher price would have had to be paid had he delayed going on the money market until the usual time. It was announced also that the taxpayer had not been involved in any loss as the proceeds of the loan were reinvested in the short-loan market at an average rate of approximately £5/3/9, with the result that a profit had been made on the moneys for the period during which they had been held. The proceeds have, of course, since been utilised in New Zealand for the purposes for which they were raised, namely, public works and hydro-electric construction and railways improvement. Self-imposed Restriction. One of the conditions of the flotation was that New Zealand would refrain from going on the London money market for a further loan during the balance of that year, and the following financial year, the -period which came to an end yesterday. The effect of the transaction was that Hie country had borrowed before the’end of one financial year the normal requirements for the next year and had agreed not to go on the market again until the financial year 1930-1931. Loan in May ? With the start of the new financial year to-day, New Zealand is free to resume financial negotiations with London. The Finance Act of last session contains new borrowing authorises up to £5,500,000 for the purposes of public works, education, and forestry; incidentally it may be noted that there are in existence unexhausted authorities for the raising of loans up to £27,000,000. It is anticipated that the loan which no doubt will be floated in London toward the end of April or the beginning of May next will not exceed the average of similar loans raised during the last few years.