THE H.B. TRIBUNE THURSDAY, AUGUST 25, 1927 BORROWING ABROAD

Hawke's Bay Tribune, Volume XVII, Issue 215, 25 August 1927, Page 4

THE H.B. TRIBUNE THURSDAY, AUGUST 25, 1927 BORROWING ABROAD

A FTER a good few preliminary indications that such would be the case, we are to-day told definitely that the Commonwealth Government has gone to New York for another loan, the Federal Government now doing all the outside borrowing required both on its own account and on account of the individual constituent States. The amount of the issue is 40 million dollars, the equivalent of about 8 million sterling, and the rate of interest 5 per cent. No specific mention is made in the announcing cable as to the price at which the £lOO bonds are to be sold, so that we may perhaps assume that they are to go to the public at par. Should this be the case—though we must have some little doubt about it—then the terms are on the face of them, substantially the best that have been secured for some time by either Australia or New Zealand, whether in London or New York, as latterly in both financial centres Australasian loans have been launched at some varying but appreciable discounts. On this point we shall have to wait for more precise word later on. A day or two back we had a Brisbane message which quoted the Queensland Premier, the Hon. VV. McCormack, just returned from a visit to the Old Country and to the United States, as saying that Australia would have to depend more and more on New York, instead of London, for financial accommodation. In doing this, he said, they would really be helping Great Britain, because there the financial position was most difficult- This is no doubt the case, for Britain’s favourable “balance of trade,” which produces the new capital available for lending, has of recent years fallen very low. Beyond this, as has been previously pointed out, the Old Country just now is in the throes of reconstructing and reorganising her industrial system, and this will require the investment of a very great propor tion of such fresh capital as is accumulating there It can therefore be quite readily understood that London will, for the time being at aiey rate, be only too glad to be relieved of the necessity for finding big sums for the oversea Dominions Discussing Government borrowing prospects two or three weeks ago a

Sydney financial writer said that—as with ourselves—the monetary situation in Australia was one of stringency. Beyond this, the season there was bad and, with only a fair wool clip and a low harvest in view, there would be no great replenishment of funds. If, then, as seemed likely, there was competition between the Governments, on the one hand, and the industrialists, on the other, for the smaller amount of fresh local capital thus made available, interest rates were sure to go up. Thus the Governments ought to see the necessity of going abroad to till their requirements. It was then pointed out that, though short-term lending money might be fairly plentiful in London—a good deal of it attracted there from New York—there was great scarcity of funds for long-term investment. Indeed, the “Statist," a leading press authority on economics, was quoted as suggesting that conditions were such as to make it necessary to consider the prudence of again placing the issue of foreign loans under Government control. Although, as has been sai 1 the conditions of the loan just underwritten in New York would seem to be quite favourable for the borrower, and the Queensland Premier seems to have no objection to resorting thither for money, Sir Hal Colebatch, formerly Agent-General for Western Australia, has expressed other views. He maintains that there is considerable danger looming as the result of going elsewhere than to London for outside loans. He points out that otherwhere we may expect that, when opportunity offers according to the borrower’s neces sities and lack of competition for its custom, the "squeezing” process is pretty sure to be applied. He in stances the case of Belgium, towards the end of last year, when she raised an international loan of 20 million sterling for the purpose of assisting in stabilising her currency in foreign exchange. The published terms of that loan were an issue price of £94 interest 7 per cent., and a sinking fund of one per cent. The loan stock was immediately after the closing of subscriptions quoted at about £99, showing that Belgium had been forced to take £5 per £ll>< less than the real lenders were willii to pay A letter received in Sydney stated that the London market was willing to take and issue the loan ■it £92 at 6 per cent.; but the Americans, who were taking the other ball, refused to do it lor less than 7 per cent. The loan was sold to tin American issuing syndicate by the Belgian Governn/eul, and so sure was the syndicate ot its immediate success that it decided to do nearly all the subscribing itself without allowing the market to participate. The loan was very greatly oversubscribed, and went immediately to a premium. The profit of the issuing syndicate was, therefore, very great, as it got ail the underwriting and service charges as well as 5 per cent, on all the loan it allotted to itsell Judging from this instance, there is not much “sympathy” to be expected from New York financiers when dealing even with America’s hard-up "Associates’’ of the Great War. Let New Zealand, therefore, stick religiously to London as long as she possibly can.