LOAN CONVERSION

Nelson Evening Mail, Volume LXIV, 18 September 1929, Page 8

LOAN CONVERSION

STATEMENT BY PRIME MINISTER TRANSACTION EXPLAINED \\ir Telegraph—From "The Mail's" Parliamentary Reporter) WELLINGTON, 17th September. The successful loan conversion transaction which has just been completed on tin; London market was commented ">' bv the Prime Minister (the Eight Hon. Sir Joseph Ward) in a statement made to the House of Representatives yesterday. "Tlie conversion and redemption of this 4 per cent, stock maturing on Ist November next is now practically completed, and is the largest and most important financial operation in the Dominion's experience." said Sir Joseph. "The. consolidation of this stock .dates back to loans prior to 1880, with additions up to 1893, and later from 1912, when further small amounts were added. The amount outstanding at 31sL .March, 1928, was £29,490,852 4s. "During last financial year it was deemed desirable by our financial advisers at Home to take advantage of market conditions, with a view to lessening the amount to be dealt with at maturity in November next. As a result a conversion offer of £5,000,000 was made by my predecessor to holders in May, 1928, on the basis of £lO4 10s newstock for every £IOO of the 4 per cent. 1929 stock maturing. In terms of the offer stock to the nominal value of £5,030,000 was surrendered for tho new issue at 4£ per cent, interest, with currency to Ist November, 1947, the nominal value of the new stock issued being £5,256,348 7s 9d. The interest cost'of this conversion to the State, taking into consideration the expenses of conversion and redemption of the premium over the period of the new loan, worked out at £4 18s 3d per cent. "Following on the £,5,000,000 conversion of .May, 1928, further stock was purchased from the proceeds of additional sales of 4£ per cent. 1947 stock, amounting to a nominal value of £572,000 of the 4 per cent. 1929 stock. These private sales were made - at different prices, the interest cost to the State in respect of the sales working out at approximately £4 18s per cent.

THE JANUARY TRANSACTION "In January of this year, in conjunction with the cash loan for the 1929-30 requirements, I arranged a further eonversion offer to holders to the extent of £12,000,000. In this case new stock to the nominal value of £lO4 5s was issued for each £IOO of the 4 per cent. 1929'stock surrendered, the total amount surrendered amounting to £11,729,496. The new stock in this instance was at 4£ per cent., with currency to Ist March, 1958, the option being reserved to the Government to redeem on or after Ist March, 1948. The total now stock issued in respect of this conversion was £12,227,987 13s 3d. The interest cost to, the State of this parcel, allowing for the redemption of the conversion premium and other expenses over the period of the loan, is £4 16s lid per cent. It will thus be seen that of the total £29,490,852 4s outstanding on Ist April, 1928, £17,331,496 was dealt with up to January last. "In addition to these transactions, public debt repayments moneys were used to the extent of £502,500 during the financial year 1928-29. Moneys raised in New Zealand amounting to £l,925,500 at rates not exceeding 5£ per cent, have also been utilised in further redemption of the maturing stock. Purchases of this stock on the London market have been made from these local sources from time to time as opportunity offered, and the stock so purchased, amounting to £1,925,500, was bought at an average of £99 10s per cent. It was necessary, of course, to remit the required cash from New Zealand to London as required to meet these purchases. These additional moneys have accounted for, a further reduction of £2,428,000 in the total.

THE POSITION TO DATE "Summarised, the operations to date in regard to the maturing stock are as under:—

Balance to be dealt with £9,731,356 4 0 "The amount of stock outstanding was therefore approximately £9,700,000, and a further conversion offer to the extent of £5,000,000 having been underwritten' is now being made to holders, namely, 5 per cent, stock at par to mature Ist July, 1945, with the option of the Government to redeem on or after Ist July, 1935, together with a cash payment of £2 per cent, on the Ist November, or as an alternative present conversion at the rate of £IOO new stock for each £9B of the 4 per cent. 1929 stock surrendered. Allowing for charges and expenses and redemption of the premium the interest cost to the State over the period 16 years will be £5 7s 8d per cent. "Including the figures relating to the conversion offer now being made the annual interest cost to the State on the total stock issued in conversion or redemption works out at an average of less than 5 per cent. "In regard to the balance of approximately £4,700,000 remaining, it is proposed to pay off the holders at maturity in cash. Funds for the purpose, will be made available in London firstly by the amount of £700,000 provided for redemption under the Repayment of the Ptiblie Debt Act, 1925, and secondly, by utilising cash already temporarily invested in London, which will as required be replaced out of funds from local sources. The effect of tin's policy will be to bring t lie domicile of a fairly large parcel of the debt affected—approximately £6,ooo,ooo—from London to New Zealand.

As pointed out in the Budget, by the time the whole (; f the 5 per cent. 1929 stock has been dealt with, it is calculated that yearly interest costs will be increased by about £220,000 a year. STRENGTHENING OF CREDIT "The methods adopted for completion of these conversions are regarded by

our London advisers as a strengthening of our credit in London, and have con sidcrably assisted I hem in their opera lions in a market very difficult for borrowers. Since Ihe beginning of I lie year, as it became apparent l.hal. inlcr national finance, was adversely affecting London's resources, 1 have pursued Impolicy of.applying our local resources to tho utmost in assisting to lighten the final conversion, with the results 1 hive outlined above-. Advices of Press comment.-, in London on the public conversion terms yesterday are very favourable, and congratulate the Dominion on having found such a satisfactory way out of difficulties arising out of present monetary conditions.'' f LONDON PRESS OPINIONS FAVOURABLE COMMENT The Prime Minister has received from the High Commissioner for New Zealand a cable, summarising highly favourable London .Press comment on New Zealand's latest financial transactions in that market. The High Commissioner's own comment is: "Once again English Press very favourable towards New Zealand's credit in London and present conversion offer." "The Times" congratulates New Zealand in paying off virtually £0 per cent. of outstanding amount, arid it also refers to position as regarding finances contained in prospectus, and after commenting on surplus, public debt, and other assets, "The Times" says it will be seen that the financial position of New Zealand is satisfactory.

The "Daily Telegraph" refers to New Zealand's good record as to debt-man-agement. The "Financial Times" states:— "New Zealand's high credit will certainly not be diminished by paying over half the amount of the debt."'

The "Daily Express" states: "New Zealand has found money to repay part of the old Joan in cash, an event which has created a very favourable impression in the city." The "Evening Standard" stales: "New Zealand is to be congratulated on having found a way out of difficulties arising from the present monetary position."'

£ sd Stock outstandin g 1st April, 1928 .... 29,490.852 4 0 Less: £ 1st conversion 5,030,000 London issue in redemption of 572,000 2nd \convn. 11,729^96 Local issues in redemption 1,925,500 Public debt repayment moneys 502,500 10 rtifi 00 — i.0,/O3,4i3U