CONVERSION OF LOAN

New Zealand Herald, Volume LXIX, Issue 21281, 7 September 1932, Page 12

CONVERSION OF LOAN

'FIRST IN NEW ZEALAND

TRANSPORT BOARD'S ACTION

FURTHER SUM TO BE RAISED

' Arrangements for what is believed to be the first conversion loan undertaken in New Zealand wore completed by the Transport Board at a meeting yesterday, when authority was received from the Local Government Loans Board to raise a loan of,/£IIO,OOO for 18 years on a table mortgage to convert £IIO,OOO of debentures issued by the board. A proposal to borrow j& further sum of £130.000 out of loans previously authorised was also finalised.

The. chairman, Mr. J. A. C. Allum, said application had been made to the Loans Board for power to raise £IIO,OOO for 20 years atJ 53 per cent, the total capital charges, including sinking fund, to be 6$ pey cent per annum for the first 10 jeais and for/the remainder such an amount as would be necessary to redeem the balance oi the loan. The application had been approved, with the alteration of the period of the loan to 18 years, as the original itsue had run for two years.

"These proposals involve the' unique arrangement of providing a low rate of sinking fund payment for the first period, with a high rate for the balance of the tame, and this ; will be justified by the fa.ct that after 1940 the board will be relieved of! the present. liability of over £90.000 a year on account of the original, loan of £1,250,000," continued the chairman. The board was at present paying interest of per cent and a sinking fund rate of 3 per cent, and the saving under the new arrangement would be £2475 a year. If the further sum of £IBO,OOO was borrowed tinder the old sinking fund terms and at per cent, which was the lowest at which the board could expect to obtain the money, the board would have to find a total of 8£ per cent per annum. By using a table mortgage on similar terms to the conversion loan, 2 per cent would bo equal to £3600 a year, making a total sdving by the new arrangements of £6OOO a year. ' "The whole conversion proposal is very unsatisfactory to me," said Mr. H. G. ]i. Mason. "We will gain only by a reduction in sinking-fund rates for the next 310 years and will certainly put a shocking burden on posterity. The whole proceeding is entirely profligate." "This is the first conversion loan in New Zealand and I hope it will not be the last," said Mr. T. Bloodworth. The present was the time for the board and other local bodies to obtain relief. The' board then decided to raise the conversion loan.

When the motion to borrow a. further £IBO,OOO, comprising £50,000 of tho Avondale extension loan and £130,000 of the transport development loan, for 20 years on it similar mortgage, was before the board, the chairman explained that for the first 10 years interest and sinking fund would tftal 6£ per cent and for the remainder- of the life of the loan about 11? per cent. This loan was then authorised.