LOAN CONVERSION

Evening Post, Volume CXV, Issue 48, 27 February 1933, Page 8

LOAN CONVERSION

REDUCING TO 4 PER CENT.

OK VOLUNTARY BASIS

GOVERNMENT TO ACT

early; announcement

The voluntary conversion to 4 per cent, of the National Debt of £118,386,395 domiciled in New Zealand is to be undertaken by the Government. A preliminary announcßment concerning the proposal will probably be made in the House of Representatives tomorrow night by the Minister of Finance (the Rt. Hon. J. G. Cqates). Although official secrecy prevails, inquiries made this morning indicate that the Government is in possession of sufficient information to presage the success of the undertaking. During recent weeks large holders of New Zealand Government securities have been communicated with by the Minister, who has received promises of conversions by these •holders of a substantial; amount of ecrip. The problem has been complicated by the varying rates of interest of Govern. menfc stock and also the nuinerdus periods of repayment, as well as the belief that the imposition of a further stamp •duty, which was the major proposal until a few days ago, was too cumbersome a method. Cabinet has decided that the way out of the complication was to provide for a conversion of existing stock to a uniform rate of interest of 4 per cent., but the details will be.so arranged,-as to prevent any individual reduction exceeding 20 per cent. In order to achieve this there will be a variation in the amount of scrip handed to the stockholder in proportion to the sacrifice made on his original. holding. • For example, there may be two stockholders each-holding bonds worth £100, but the interest on one*. security ia higher' than on the otlieri ■ The Government proposes to issue to one a slightly arger amount of scrip to equalise the difference "between the two stockholders.'■ Although definite calculations are not possible, at.the present stage,-it ia estimated, that the saving- to the Budget in a full year as a result of the conversion will be £300)000. The British conversion. of £2,000,000,000 from 5 to a 3J per cent, basis was accompanied -by a bonus of 1 per.cent, on redemption, which sheltered the bondholders from too sndden a drop in interest. So far inquiries have failed t.o disclose whether there is a similar intention on the part of the New: Zealand Government. The ; conversion proposals outlined above have a very much, wider bearug than the immediate Budgetary position.1 The Government views it as an essential prelude to continuing the negotiations which have already been .opened with the . British financial authorities for a review not only of the funded debt of £24,000,000, but of the ordinary National Debt of about £140,000,000 held by the British public. .A successful New Zealand conversion would undoubtedly have a powerful influence on any appeal to the overseas lender for a slight, lifting of the debt service burden. THe conversion.to be undertaken, by the Government bears., no relation to the local body debt of over & 39,000,000 on which, as already.."[announced, the Government intends to impose an additional 10 per cent, in stamp duty deduction from interest payments. '