CONVERSION LOAN

Grey River Argus, 5 September 1939, Page 5

CONVERSION LOAN

Unusual Features GROUP GUARANTEE. LONDON, August 10. Considerable interest has been taken in financial circles in the conversion of the £16,000,000 New Zealand loan, the details of which were arranged by the Hon. W. Nash, Minister of Finance, just before his return to New Zealand. Although no statement has been made it is understood that conversion.; and cash subscriptions to the loan did not cover more than about one-quar-ter of the total. The exact proportion was, of course, cabled to the New' Zealand Government, to whom it was suggested that they could publish or keep private the figure as they desired. If one-quarter of the total has been accounted for in this manner the proportion compares very favourably with- the subscriptions to the Australian, London County Council, and Hertfordshire County loans recently floated in the City. All were left with the underwriters and less than one-quarter was accounted for by public subscription. The comment of the “Daily. Telegraph” is that the balance of the New Zealand loan “has been taken care of by such strong financial institutions that there can be no question of any necessitous selling.” Very little business was reported to have been transacted on the onening day o$ the dealings. Four bargains were recorded in the dealing for the 3i per cent, script. At the opening a nominal price of 1-16 premium sellers only was mentioned. There was no business at this level and a price w'as then made of 5 discount to 1-16 premium. At the close of the market the quotation was 1-8 discount to 1-16 premium. The “Financial Times” said: “The loan operation has been marked by a number of unusual features, one of the chief being the complete absence of information as to the extent of conversions or cash subscriptions. Such details are known only to the Bank of England, which arranged the loan. "The loan was not. underwritten in the way usually followed in such operations. On this occasion, to rid the Dominion in a difficult situation, the Bank of England called upon a group of banks to co-operate with itself in guaranteeing the wffiole amount of the loan. “The banking group’s liability was the guarantee of up to £6,000,000 of any of the loan not covered by conversions, the Bank of England undertaking the guarantee of the balance of £10,000,000. While no official details can be obtained as to the result of the loan, the general impression in the Stock Exchange is that, whereas a fair number of holders of maturing stock decided to convert public subscriptions w'ere on a very small scale. “Such a result would in the ordinary course, where an issue is underwritten, have meant a considerable amount of selling by those left with the scrip. Pressure to sell in the pre-' sent instance can be ruled out. Those holders who have decided to convert obviously desire to retain their interest, and the banks will not be inclined to dispose of their allotments under the guarantee plan at less than the subscription price of 99. No commission was received for undertaking the guaranteeing of the loan. Should any demand spring up for the Issue, dealers will not have to look very far for any scrip they need.” The “Daily Express’ said: “The prospectus advertised on July’ 27 was a unique document. It did not contain the usual statement that the loan had been underwritten. But City editors, called one .by one to the Bank

of England, were given to understand, in the room next to Mr Montagu Normans famous parlour, that although the loan had not been underwritten ‘steps had been taken to assure that it would be fully covered in one quarter or another.’ In fact, Mr Montagu Norman had drawn up a little list of specially-favoured banks who would subscribe for any stock not taken up by the public. “No information whatever was given regarding the identity of the guarantors, the proportions they had ' been ‘requested’ to guarantee, or the terms under which they would be ‘allowed to take up their share.” It was stated that an assurance had been given to the brokers to the issue, by the Bank of New Zealand, by the High Commissioner for New Zealand, and by leading dealers in the giltedged market that they had no idea of the result of the offer. “Even more extraordinary, they doubt if they ever will know how much, or rather, how little, the public have subscribed and how many millions of stock the secret syndicate have had t o absorb. The market says that the syndicate may have got stuck with as much as 98 per cent, of the cash part of the issue. If correct, this sets up a new record for trustee issues. / ' “A director' of the Bank of England would neither confirm nor deny this figure. ‘We are not publishing any result of any details about the guarantors,’ he said. ‘All I can say is that the operation has been satisfactorily concluded. The result, in our opinion, is reasonably satisfactory.”