Manawatu Evening Standard. TUESDAY, MAY 19, 1925. THE SEVEN MILLION LOAN.

Manawatu Standard, Volume XLV, Issue 141, 19 May 1925, Page 4

Manawatu Evening Standard. TUESDAY, MAY 19, 1925. THE SEVEN MILLION LOAN.

The comparative failure of the New Zealand four and a-lialf per cent, loan of seven millions offered to the public at £94 10s for every £IOO worth of stock taken up is rather serious. It does not appear, however, that there has been any loss in credit, so far as New Zealand is concerned, on the part of British investors. Sir Francis Bell, who was holding the Finance portfolio during the illness of Mr Massey, attributes the non-success of the loan more to the restoration of the gold standard in Great Britain than to any depreciation in the credit of the Dominion. The decision of the British Government to revert to the gold standard naturally necessitates the buying of gold in comparatively large quantities, and, as the United States of America is by far the largest holder of gold in tho world at the present time (it is said to hold 75 per cent, of the world’s supplies), it has become necessary for the Bank of England to negotiate with the financiers of Wall Street for gold purchases in order that the demand for the precious metal may be mot when the embargo on its export is lifted by the British Government. In pursuance of its policy which is always cautious and conservative, the bank decided the other day to raise the interest rate to five per cent., and this has not been without its effect ou tho New Zealund loan which was placed on tho market at the lower rate of four and a-lialf per cent. Apart from that, however, the smallness of the subscrip-tion—eighty-five per cent, of the seven millions being left in the hands of the underwriters —denotes a weakness in the London money market which augurs ill for the cheap money which is so urgently required for developmental and other purposes where State railways and other State enterprises are paid for out of loan moneys. It is perhaps a little unfortunate that New Zealund stands committed at the present time to such large expenditures on hydro-electric power works and railways, etc., concurrently with tho pressing demands that are being made by settlers and others upon the State Advances Office, because it seems inevitable that there must be a slowing down of expenditure and advances in both directions, unless the country is prepared to pay higher rates of interest than those at present charged. It is further unfortunate that the bank rate of interest should have been raised just at the very time when the New Zealand loan was placed upon tho London market. It is possible that the news of Mr Massey’s death, which reached England about the same time as the loan was announced, has also affected the issue and caused investors to withhold their offerings until the political situation in the Dominion becomes a little clearer. In this respect tho attitude of the New Zeuland Labour Party und its leaders has probably not been without its effect on the public mind. The party’s cubled messages conveying its condolences to the Soviet Government over tho death of Lenin, and to the leaders of the British Labour Party congratulating them on their accession to, office, and again wishing them success at the elections last year, together with tho party's claim that it represented the workers of New Zealand, can hardly fail to have produced an unfavourable im-

pression on the minds of investors; and now that the cne strong statesman so univers ally admired in Britain has had his hand removed from the helm of State by death, that impression may have led to serious misgivings to the security of investments in New Zealand stocks and properties, seeing that a party favouring a policy of State confiscation of property, etc., has been knocking at the door. In its bla:a:nt aggressiveness the Labour Party creates, and is bound to create, an unfavourable impression amongst capitalists, whose interests it suggests should be confiscated for the alleged good of the community. While British investors may not attach a great deal of importance to the vapourings of the extremists amongst us, they may prefer to await developments in the government of the country before again taking up its stock. The view taken by Si): Francis Bell that the falling off in the subscriptions is due to tne re-introduction of the gold standard is shared by the New Zealand authorities in London, who seem to think that it will result in the rate of interest rising to six per cent. That is a very serious matter for, if the view thus taken is correct, it means that loan moneys will not be procurable in London at less than that rate and may probably cost more. The 1924 loan of £5,000,000, carrying interest at 4.) per cent., was floated at £95. Its actual yield to investors was £4 14s 9d per cent.; its annual cost to the country being £4 16s 5d per cent, for interest only, or £5 0s lOd per cent., with redemption in twenty years. The cost of this year’s loan, 85 per cent, of which is (as already stated) left in the hands of the underwriters, will be considerably greater. .'The stock is already quoted at a discount on the £94 10s at which it was offered. The London Times’s city editor points the fact that the non-success of the New Zealand loan is bound to influence the future of colonial issues, and hints that any attempt to raise fresh money in other than moderate sums may easily force the interest rate up to the six per cent, level, whereas there appeared to be every prospect of its falling to rates more in accordance with the pre-war standard, the tendency shown during the last twelve or eighteen months, where loans raised by the overseas jDominions were concerned, being in that direction. Within the last year or two New Zealand Government securities have ranked pari passu with those of the British Government. How far our credit may be ultimately affected by the r.ionsuceess of this latest loan remains to be seen. It is not pleasing to think that the value of New Zealand securities may be affected by the decision to revert to the gold standard in the Mother Country. While that decision is not without its advantages, it is attended with certain inconveniences which must follow the limitations ol: the currency, so far as Treasury and. bank notes are concerned, as it is necessary to bring them more into line with the holdings of gold and bullion, and, as we have pointed out, gold purchases must be made in the United States, to the Government of which Great Britain is so largely indebted, her indebtedness necessitating payments of something like £60,000,00*1 per annum, which under existing circumstances can only be paid in gold or securities, owing to the high protective tariff adopted by America preventing, or largely so', payments in kind.