The Dominion. THURSDAY, MAY 15, 1941. A CONVERSION LOAN

Dominion, Volume 34, Issue 195, 15 May 1941, Page 8

The Dominion. THURSDAY, MAY 15, 1941. A CONVERSION LOAN

With war expenditure difficult, if not impossible, to estimate and continuing for an indefinite period, it becomes more essential than ever to place what might be termed our domestic finance on the most stable basis possible. For that reason the Government has decided to issue a conversion loan covering two maturities in t u current year and two in 1943. That will clear the decks of all but small amounts until 1946 and enable attention to be concentrated on loans falling due overseas. The Minister has been well advised to take this course for it will be necessary for him to come on the local market for war loans and he is following the British precedent in effecting conversions before seeking new money. Holders of the loans to be converted will be offered a choice oi terms. The short-dated stock, issued at par, will carry interest at o per cent, and mature in 1946-48. The alternative is a3j per cen issue repayable in 1957-60 and carrying a premium of 3 per cent in the form of additional securities in the new loan. This will give the holder a return of approximately £3/9/6 per cent. As a long term investment in the conditions prevailing today it should be attractive especially to trustees, and it will give the small holders securities with a better yield than they could obtain by placing money on call or on time deposit. ~ , . , There are, however, wider aspects to be considered,, and they, too show the importance of this conversion loan being, successful. It would mean the reinvestment of a very large sum, obviating the need for the State to redeem holdings in cash, a process that might, ano probably would, go to swell purchasing power at a time when it should be restricted as much as possible.. Large redemptions would swamp a market in which suitable securities are not easily located as things are, and thus have an unsettling effect on money rates.. The aggregate of the loans to be converted, it should, be noted,, is substantially greater than the limit of £15,000,000 which can be imposed on the new issue, arrangements having apparently been made toi dealing with the balance. That course, too, is in keeping with the practice favoured by the London market, where issues, that have been reduced by repayments are strongly favoured. The right to stipulate that the conversion holdings, in whole or in part, shall be in the form of death duty stock is a concession that should add to the success oi the issue. The proposed transactions should (1) consolidate the internal financial position at a time when that is essential; (2) prevent any risk of inflation through some of the redemption, funds being used for consumption purposes; (3) not disturb the investment market for the absorption of future war loans; (4) strengthen the ciedit of the Dominion in the overseas money market. The terms are reasonable and designed to meet all classes of holders, and it is to be hoped that the issue will be a distinct success. The success of the conversion operation will no doubt be assisted by the announcement made today by the ..Minister of Finance regarding the Government’s policy in respect of -a future war loan which no doubt will constitute a pail of the coming Budget proposals. It is satisfactory to learn that this loan for the coming financial year will be on a purely voluntaiy basis. *