LOCAL BODY LOANS

Evening Post, Volume CXVII, Issue 111, 12 May 1934, Page 14

LOCAL BODY LOANS

RATES OF INTEREST

BOARD AGREES TO REDUCTION

CONVERSION PROGRESS

Special consideration to the question of interest rates on loans to local bodies was given by the Local Government Loans Board at its meeting yesterday. A reduction of i per cent, was authorised.

"Having regard to the fact that gilt- ' edged securities are now selling at prices which return to tho buyer interest at from 3|- per cent, to 4 per cent," states the official report, "the board was of the opinion that the rates of interest for new loans to be raised by local authorities cither for the purpose of renewing maturing loans or for new works should- be reduced. Some months ago the board adopted the rate of 4 per cent, for the major local authorities, with an intermediate rate of 4 1-8 per cent, and a maximum rate of 4i per cent, for the smaller local authorities. In view of the present trend as evidenced by the quotations on the Stock Exchange, the board, at its meeting yesterday, decided that in future the rate to be sanctioned for loans to be raised l>y the major local authorities will be 3$ per cent., with an intermediate rate of 3 7-8 per cent, and a maximum rate of 4 per cent, for the local authorities of the smaller classes. "The board has not departed, however, from the conversion rate -of 4i per cent, for conversion of existing loans under the Local Authorities Interest Seduction and Loans Conversion Act, 1932-33. The board looks upon a transaction, of this nature as being in a different category. In any case, a reduction in the rate on conversion would not confer any greater benefits on local authorities, at any rate for the term of existing securities, as a. reduction below 4i per cent. would have to be accompanied by an increase in the premiums payable on conversion, and these premiums are calculated having regard to the unexpired term of the securities which arc subject to conversion." APPLICATIONS DEALT WITH. At its meeting yesterday tho board dealt with 26 applications for loans totalling £974,325, of which £942,800 were sanctioned, comprising £395 100 redemptions and £547,700 for new works, the balance of £31,525 being declined and referred back for further consideration. The board also authorised the diversion of £27,550 of unexpended loan balances to other public works. Further applications from local authorities for conversion of loans were also dealt with at the meeting forty cases being considered, involving existing loans totalling £6,570,500, and the issue of new seenrifies to the value of approximately £6,481,504 bearing interest at 4} per cent A total of 193 schemes from 136 different local authorities have now been dealt with by the board, coverine debt amounting to £27,526,578, the approximate amount of new securities to be issued being £27,251,193. "Premiums on conversion are being met to a large extent by the issue of new securities," ■ states tho board, but this increase in the nominal amount of the debt is more than offset by the arrangements which are being made in certain cases for tho settinooff of existing sinking funds as at the date of conversion against the original amounts of the loans. In the final analysis a reduction in the total debt has resulted from conversion. CONVERSIONS DEALT WITH. "The latest figures available, as appearing in the 1933 Local Authorities Handbook, disclose that the local authority debt domiciled in New Zealand at March 31, 1932, amounted to £47,757,576, but of this sum' £43,023,734 only is subject to the conversion legislation, the balance being excluded mainly on account of tho fact that the, rate of interest is at present 4} per cent, or less. Debt totalling £27,526,578 has now been dealt with by tho board, leaving £15,497,156 for future consideration. Already approximately 64 per cent, of the convertible debt has been dealt with by the Loans Board.. . -. .

"The schemes approved to date have emanated from a wide range of different classes of local authorities. Schemes from twelve classes of local authorities have already been finalised, as follows:—Cities and boroughs, 47; power boards, 29; harbour boards, 11; town boards, 9; hospital boards, 9; fire boards, 5; river boards, 4; county councils, 13; drainage boards, 5; tramway boards, 2; and one each from, a, gas lighting board and an irrigation board. "The Loans Board has already commented on the fact that the majority of local authorities are alive to the material advantages to be gained from conversion, particularly in the direction of changing the system of repayment of existing loans from a sinking-fund basis to a basis of annual redemption of debt. The board is convinced that this is a step in the Tight direction and that it will be a factor in regulating rates of interest on future loans. Furthermore, the adoption of the system has enabled conversion to proceed, in many eases without asking bond-holders to agree to extensions of existing securities. The old system of repayment by means of the sinking furid would have- necessitated in the majority of cases long-term extensions which, as stated above, can be avoided under the system which has been adopted."