LOAN CONVERSION

Evening Star, Issue 21824, 13 September 1934, Page 1

LOAN CONVERSION

OUNEDIN’S SOUND POSITION TRIUMPH FOR PAST POLICY When the report of the Finance Committee was being considered by city councillors at their meeting last night several tributes were paid to the sound financial policy .of past councillors, which had enabled the corporation at the present time to take the greatest advantage of existing conditions. The following clause was included in the report:—“ The prospectus of the city’s conversion scheme contained a provision reserving to the . council the right to repay any debenture that is set to mature after 1940 at a ■ date prior to the maturity date to be shown on the new debenture. The _ option might be exercised in a variety cf ways, and as the maturity dates' of the new bonds after April 1, 1940, extend to April 1, 1958, there is a range of eighteen years during which the council might or might not determine to exercise its right of repayment. It is now felt that this arrangement does not sufficiently conserve interests of the bondholders, due to the uncertainty of the currency of the bonds, and that the fairer way for the council to exercise any option would be to on all bonds maturing after 1940 the right to repay at any time within three years of the new maturity date. In that event the holder of a bond set to mature on April 1, 1958, would be assured that his investment, would run to within three years of that date for certain, and the market value of the bond for resale at any time during the period could be calculated with certainty. As it is desirable that the interests of the boklholders should be fully conserved, the proposed alteration in the provision for exercising' the option, as above outlined, has been approved.” A statement outlining the position was made by Cr A. H. Allen (chairman of the committee), who said that a start was made on September 1, and already the Finance Committee had received assent in the matter of conversion for amounts totalling approximately £1,000,000. The total sum covered by the conversion operations' was £2,214,700, which represented easily the largest conversion operations by a local body in New Zealand. Auckland o«me next with a total amount to bo converted of £1,797,000. A perusal of the notifications regarding conversion schemes as published in the daily Press afforded an interesting opportunity for ratepayers to study ■ and compare the methods employed in Dunedin and those, adopted elsewhere. , Alost of the notifications indicated, that a, premium per £IOO was payable to holders on con-, version, this premium being based mi two factors. In the first place-regard-must be had to the difference between the original rate of, interest, less the statutory 20 per cent, reduction provided by law, and the 4f per cent, interest payable on the new debentures. Secondly, the unexpired term of the debentures had to be taken into ac--1 count. It followed, therefore, that a lengthy unexpired term plus a high rate of interest connoted a big ■ premium. Dunedin had generally borrowed in the local market ' for long terms when money was'cheap and for short terms when money was dear. Consequently no high premiums had had to be paid. The highest premium that Dunedin had had to pay on-con-version was £1 19s lid, but even that amount was offset by the fact that on many of their conversions they had not had to pay any premium whatever. This position was in marked contrast with the plight of some other local bodies which had been compelled to pay heavily. Some had found it necessary to pay as much as £lO and £l2 per £IOO, and in that day’s papers there was an advertisement by one public body in. New Zealand which offered a premium of £l3 17s as an inducement to its bondholders to convert their holdings to a lower rate of interest. “It is indeed fortunate,” said Or Allen, “ that a large proportion of our debt is domiciled in the dominion, and that we have in the past adopted sound principles in our borrowing. For this I think we are indebted to the foresight and vision of past councillors, and I feel that this council and the city should not lose sight of how much they owe to them.” Cr J. L. AUlndoe said it must he very heartening to ratepayers to-learn that the city’s finances were in such a sound position,- and that they had been able to take the fullest advantage of recent legislative enactments. _ The city’s policy had been justified time and time again. The position of some of the northern centres _ was such that they would gladly be in Dunedin’s place at the present time. Business in some of them might have expanded more rapidly, but they now had a burden to boar that Dunedin had not. It should make them glad to realise that mosf of their debts were domiciled in New Zealand, as they could confidently look forward to a reduction in the interest burden and a steady improvement in the city’s finances. They were greatly indebted to the wise policy of past councils—a fact which he thought they should not overlook.

Or Silyerstonc: For once Cr MTndpo agrees with me. He agrees with partial confiscation. Cr APlndoe: Oh. no, I don’t. Cr Silverstone: Yes, you do. The mayor (the Rev. E. T. Cox) referred with satisfaction to the good position of the city’s finances, and said there was no doubt that they had been well handled in the past. However, he 'wondered if the proposal of - the council to give away the right to purchase back debentures after 1940 unless it were within three years of the expiry date in 1958 was in keeping with the wise and prudent traditions of the past. He did not sec why they should relinquish the right to buy back their de-

benturies at any time._ • It did not seem wise to him to give _ away what amounted to a civic privilege. It was quite possible that- they might be able to borrow money at 2i per cent, in connection with some scheme. .■ Cr W. H. Shepherd; I do not think anyone would buy them at that. The Mayor; But we should be giving away our right to buy them. Cr Allen said that, to his mind, it would be breaking a contract not to act along the lines of the clause. The only way to keep faith with their bondholders in the matter of the term of their debentures was by making the provision that was proposed. It would not be fair to those from whom they borrowed the money if they bought back their debentures at a time when , money was cheap, without regard to the . position of the debenture-holders. The mayor said he could not see any difference between taking money from their bondholders, at the present time through the medium of reduced in. terest rates and in reducing the term of the debentures later on. He was unable to see why it would not be keeping faith. Cr Silverstone; Why worry? There will he" another Conversion Act before 1940. ■ Cr Allen remarked there was a wealth of difference.: , The report was adopted.