CITY FINANCES

Evening Post, Volume CXIX, Issue 96, 24 April 1935, Page 12

CITY FINANCES

SAVINGS ON CONVERSION

REDUCTION IN DEBT

Dealing with the question of the finances of Wellington Corporation at Hataitai last evening, Councillor W. Appleton said that no new loans had been raised in London since the depression of 1930 onwards, except to pay off holders of loans which had matured during those years. The mar-, ket was so unfavourable that it was necessary to pay interest at 6| per cent, in order to sell New Zealand local body debentures during 1932. As the position of the money market was so unsettled, it was arranged with the bankers for some of the debentures to be temporarily hypothecated, and these were sold in July, 1933, bearing interest at 4£ per cent. This represented a considerable saving. On May 1, 1933, it was needful to raise the Wellington city drainage renewal loan for £100,000 in order to repay debentures of equal amount which had matured. It was decided not to go on the open market, but to offer to convert holdings in the previous loan, and this operation was successful, the whole loan being taken up at par and bearing interest at 4| per cent. The cost of raising this loan was unusually low. In August, 1933, two loans fell due, the Wellington city (Karori district) water and drainage loan of £91,100, and the Wellington city (Onslow district) water and drainage loan of £93,000. The ruling rate of interest at that time was 4| per cent., but it was felt that conditions would improve, and the debentures were temporarily hypothecated instead of of being put on the market. As was anticipated, financial, conditions did improve in March, 1934, and an issue was effected on April 11 of last year, at 98& per cent, bearing interest at 4 per cent, for the full amount of both loans/ These were the last loans maturing in London for some time, and marked the termination of a very difficult period during which large loans had to be renewed in London on a most unwilling market. The high rate of exchange made it unthinkable to raise loans in New Zealand and transmit the proceeds to London. THE EXCHANGE COMPLICATION. Councillor Appleton referred to the decision in the Broken Hill Proprietary case, 'and said that the < stand taken by the London Stock' Exchange now makes it practically impossible to raise future new,- loans in London unless they clearly provide for payment in English currency. He stated that when in London in 1933. he had gone care.fully into the position with. the Corporation's bankers and; had acted in conjunction with Mr. Lewin, the Town Clerk of Dunedin, Who was then at Home making arrangements for the conversion of some of the Dunedin Corporation loans. Councillor Appleton also pointed out that the cost of exchange on funds sent ■ to London as sinking funds and to meet interest payments during the year 1933-34 was £64.511. 0 , He also referred to.Hvhat had been done by the Wellington City Council in regard to the conversion of loans under the Local Authorities Interest Reduction and Loans Conversion Act, 1932-33, In pursuance of these powers Wellington city had authorised the conversion of fifty-seven loans totalling £fj453,050, which had been issued Ihthis Dominion, at rates of interest varying between 4J per cent, to 5J per cent. Holders of the old securities were offered cash if they did not wish to convert, and cash to the extent of £84,450 was paid out of the sinking funds available, so that all those who desired cash were satisfied. New securities were issued with varying maturity dates arranged. The reduction in the public debt of the city brought about by these operations was £130,568, involving a saving in interest of £31,091 per annum. The speaker paid a tribute to the work of the council staff, which had arranged all of this heavy work of conversion at a minimum of cost and without any complaint or a hitch. The total public debt of the city,, said Councillor Appleton, as at March 31, 1934, was £5,087,634, against which sinking funds to the extent of £649,726 were held. Of the total debt £2,517,000 was held in London. . The. highest peak in regard to indebtedness,was in 1931,- when the city 'owed nearly six millions. ' Of the total indebtedness, it was interesting to note that the unproductive debt was approximately £3,600,000, and ratepayers are called upon to find the interest on' this amount. '■'■■. It was also pointed out by the candidate that the sales tax had the effect of increasing the expenditure of the various departments of thie Corporation by approximately £3000 per annum. While there had been a saving in interest under the conversion scheme it had to be remembered,that the'rentals under leaseholds and. tenancies lost to the council by tßp National Expenditure Adjustment, Act amounts to approximately £ 10,280 per annum. ■