Manawatu Evening Standard. THURSDAY, APRIL 7, 1932. THE NEW ZEALAND LOAN.

Manawatu Standard, Volume LII, Issue 108, 7 April 1932, Page 6

Manawatu Evening Standard. THURSDAY, APRIL 7, 1932. THE NEW ZEALAND LOAN.

The marked improvement in the London money market led the New Zealand Government to take advantage of the apparently favourable conditions to raise a loan of £5,000,000. This amount was underwritten at the end of last week and offered to the public on Monday. The prospectus, it is pleasing to note, met with the general approval of financial writers, whose commendation emphasises the fact that New Zealand’s credit in the Homeland is being well maintained in spite of adversity. The response of the investing public, however, was not so eager as anticipated, due, it is reported from London to-day, to the market for gilt-edged securities suffering a sudden lull after the confidence recently shown. The underwriters have been left with 47 per cent.. The more buoyant tone of the London market has been shown in recent issues. The Nyassaland Government received applications totalling nearly £60,000,000 in response to a loan for £2,000,000, and the Croydon Corporation, the Metropolitan District Railway Company, and the Port of London Authority issues were heavily over-subscribed. Just prior to the Easter vacation it was reported that more than £270,000,000 had been offered by investors in less than three weeks in response to capital issues of a nominal total of £9,000,000. The agents of the New Zealand Government in London apparently deemed the present time advantageous for raising a loan, and their advice was followed. It was not anticipated by the London Morning Post that there would be a spectacular rush to take up subscriptions, but this was deemed to be in the interests of genuine investors desiring reasonable allotment in a five per cent, trustee security, of which there has been a shortage. The loan has been issued at 98£ and bears interest at five per cent. The stock matures in 1971, but the Government may repay the loan as it desires after November 1, 1956. The return to investors, with redemption at par at the maturity date, is £5 Is 9d and the cost to the Government £5 5s 5d per cent. Last year’s loan was a very short term one yielding investors £5 7s 3d per cent, with the cost to the State £6 Is 3d„ but its reception was most disappointing. Issued at a time when financial conditions were most difficult and obscure, the underwriters were left with 68 per cent. Since then, however, Britain has set her face steadfastly on the road to financial recovery, and the evidence to live within her means and a balanced Budget have wrought a remarkable change in finance. It is unfortunate, however, that New Zealand should have encountered the subtle change in. the market which led to little more than half of the amount being subscribed. The purpose of the present loan has been explained by the Minister of Finance. The sum of £4,000,000 will be used for funding- Treasury Bills in London to this amount which mature in June next. Their re-

demption was part of the purpose of the exchange pool. The Government had been obliged to issue these short term bills in London to meet pressing engagements to avoid the prohibitive rates —as the Prime Minister described them—for the transmission of money to England. Their funding from short to long term will avoid the payment of exchange, a matter at present of ten per cent, and should materially ease this position. The balance of the loan will be used in financing the Government’s restricted programme of capital w-orks. A statement in this connection is. awaited. The sum available will be less than £1,000,000, but will obviate the need to transfer the equivalent amount in interest moneys, thereby easing the exchange position further. It is unfortunate that New Zealand must borrow abroad as she has been and is doing. The Reform policy was to taper off in overseas borrowing. But, the Minister for Finance points out, a sudden cessation, particularly on top of a severe contraction in national income from the fall in prices, is not in the best interests of the country. This journal has advocated as far as possible the raising of loans for essential purposes in the Dominion. In that case interest payments would be kept within the country and their benefit w-ould enhance its prosperity. The principle is a sound one. The floating of the present loan should not lessen the imperative need to balance the Budget by the exercise of the strictest economy.