"FEEDING" THE LOAN MARKET

Evening Post, Volume CXXVII, Issue 137, 13 June 1939, Page 8

"FEEDING" THE LOAN MARKET

After all, the reported indifference of the British investor to the latest Australian loan in London is not without recent precedent. Last year a loan for £7,000,000 from the same quarter received an almost similar reception. Of the £6,000,000 loan offered last week it is reported that 80 per cent, of the issue was left with the underwriters; of the £7,000,000 loan above referred to 34 per cent, only was taken up by the public. Three years ago New Zealand went into the London market for a conversion loan of £4,000,000 and of that issue 34 per cent, was left with the underwriters; but on that occasion the Governor of the Reserve Bank of New Zealand congratulated the Minister of Finance on the result. He then expressed the opinion that "New Zealand may well regard tlie issue as a success achieved in spite of adverse market conditions." The London money market today appears to be no more propitious for the floating of Dominions loans than it was then, and this notwithstanding the success of the Union of South Africa's recent loan, for special reasons could be given for that successful subscription. Many things have to be taken into consideration before a loan not fully subscribed.can be regarded as a failure, and the condition of the international political atmosphere is only one of them.

In the circumstances it may be interesting to repeat some remarks made by Professor Hytten, referring to the reception of the £7,000,000 Australian loan above mentioned. He described what he called "a new technique" developed by London underwriters in the issuing of governmental and municipal loans. It may be called "feeding the market" with a loan spread over a period, instead of allowing the market to absorb it all at once. This method of distribution of a loan was now believed to be, on the whole, favourable to the borrower, for he has the satisfaction of knowing that his loan will be or has been underwritten. It might be marketed at first at a slight discount, but the loss would be the affair of the underwriter. At any rate the investor did not stand to gain much, if anything, by this new technique, but the borrower was assured of his requirements.