TRAMWAYS LOAN

New Zealand Herald, Volume LXX, Issue 21533, 3 July 1933, Page 10

TRAMWAYS LOAN

AUCKLAND OBLIGATION PAYMENT OF INTEREST NEW ZEALAND CURRENCY OUTCRY IN LONDON Tolcgijjph—Proas Association —Copyright LONDON. June 30 The Daily Telegraph says tho Auckland City Council's instructions to pay the interest due on July 1 on the tramways loan iu New Zealand currency, have created an unfavourable impression in the City. No such instruction has been received for the July payments ot other Auckland loans, and tho resentful holders are likely to protest to the Auckland City Council. The Prime Minister of New Zealand, Mr. G. W. Forbes, commenting on tho matter, said his Government disclaimed responsibility for tho action of local »ut hnrities.

Tho High Commissioner,for the Dominion, Sic Thomas A\ ilford, told a representative of the Financial Times that tho .matter had been taken up by tho New Zealand Government, which now was fully acquainted with London yiews concerning it. The Financial News describes it as * fc the most impudent example of all defaults for sheer subterfuge." It says it is unfortunate that a conclave of city councillors should, by a hasty act, cast doubt on' the credit of New Zealand herself which hitherto has not faltered. The same paper in an editorial article Ea v S; —"Auckland's action is causing a widening ol quotations of all New Zealand securities, including Government loa.by two points. The City editor of the Times says the gilt-edged market was unpleasantly surprised by the intimation that tho coupons of tho City of Auckland tramways lor.'i are to be paid in New Zealand curri iicy. This has resulted in their temporary omission from the official list.

The Daily Mail says holders previously received payment in accordance with the wording of the bond, which apparently gives them the option of receiving sterling in London. Auckland's decision is based on the fact that the debentures originally were issued in New Zealand. Consequently, it is claimed, they are covered by the ruling of the House of Lords in the Broken Hill Proprietary case in January. REPLY TO CRITICISM COMPLYING WITH THE- LAW AUDIT OFFICE AGREES Out of,, a total tramways loan of £1,250,000, approximately £960.000 is domiciled in London, according to a statement made by the chairman of the Auckland Transport Board, Mr. J. A. C. Allum"; yesterday. On this amount £24,000 is paid out every half-year in interest. - Mr. Allum iaid the English protests against overseas instalments of interest being paid in NewZealand "currency were ineffective, because it was incumbent upon the board by law to make payments in that manner. The law in this matter was confirmed by the decision of J the British Appeal Court in tho Broken Hill Proprietary case, and the board's solicitor held that failure to pay in New Zealand currency would render members of the board and the City Council personally liable for the difference between New Zealand currency and sterling. The New Zealand Audit Department upheld this view. " It is only to be expected," said Mr. Allum, " that financial interests in London will not view the position with favour, but that does not alter the fact that local authorities in' New Zealand must comply with the law, whether it favours the overseas investor or not. I have not heard of similar complaints being made, with respect to the Broken Hill ea««e and I do not see why wo should ' c singled out. As a matter of fact, the wider issue has not yet been decided. The law at present stipulates that New Zealand currency mus,t be used in making interest payments on loans raised in New Zealand, such as this tramways loan, but tho Southland Electric-Powor Board is now applying for a ,'eclaratory judgment which, if obtained, will compel it and other local bodies to employ New Zealand currency in paying interest on loans raised in London,"with the optional domicile of London or New Zealand."

Mr. Allum said that a New Zealand debenture-holder, who was paid in New Zealand- currency, received £2 for a half-yearly coupon worth £2 10s, the difference representing the statutory interest reduction of 20 per cent imposed by the Government. A New Zealand holder, however, who transferred his debentures to London for domicile, would, if Jie were paid in sterling, receive £3 2s 6d (£2 10s paid to him in London plus 25 per cent exchange premium which he receives when the ?"oney is transferred to him in New Zejiu'nd). A New Zealander who has thus domiciled his holding in London, therefore, if he were paid in sterling, could receive an advantage of 45 per cent over-the holder who has retained bis debentures in the Dominion.

If the board paid in sterling, Mr. 'Allum added, it would cost 12s (3d to send £2 10s to London.