LOAN CONVERSION

New Zealand Herald, Volume LXX, Issue 21577, 23 August 1933, Page 12

LOAN CONVERSION

THE TRANSPORT BOARD SINKING FUND ELIMINATION PROPOSALS BY CHAIRMAN Proposals for submission to .the Locnl Government Loans Board in connection with the recent decision of the Auckland Transport Board to consolidate tramway loans domiciled in New Zealand and convert them to a new issue maturing in 20 years' time and hearing interest of per cent wore considered by the hoard at its meeting yesterday. The chairman, Mr. J. A. C. Allum, said that after discussing the board's proposals with Treasury officials, in Wellington ho would suggest that instead of making the whole of tho conversion loan of £402,700 fall duo in 1953, payment of it should be spread in approximately equal annual payments over the period, tho first instalment. of debentures to fall duo on March 31, 1935. This would mean that the board, instead of paying to tho sinking fund commissioners the annual appropriation of £GO4O 10s, would use tho money in the direct redemption of debentures. It would obtain from tho sinking fund commissioners the annual interest earned on tho existing sinking funds applicable to these loans, and annual payments on account of sinking funds themselves held by the commissioners so that these sinking funds, would bo gradually realised and utilised in paying off debentures during the term of tho loan.

Tho board would also utilise for tho purpose of redemption the annual amounts which it saved by way of interest on the debentures redeemed. Tho sinking fund payment falling due on March 31 next would not be paid over to the commissioners, but would be retained in hand toward payment of the debentures falling duo in March, 19.35. It was. also suggested that in tho caso of debentures, having a currency of more than 10 years, tho board should liavo tho right, after tho expiration of 10 years and on giving six months' notice, to redeem any or all of such debentures at any time. Loan with Savings Bank

It was recommended by Mr. Allum that this proposal should be submitted to the Loans Board for approval as soon as the details wero worked out. Ho said it was desirable that tho matter should be put in hand immediately, and the only thing remaining to be done was finally to fix the amounts of tho various issues.

Referring to nil item of £77,000 at 5J per cent, with maturity in 1959, being part of an Auckland City Council Consolidated Loan, Mr. Allum said tho debentures representing this £77,000 wero held by the trustees of the Auckland Savings Bank. The trustees, it was understood, were prepared to agree to a conversion on condition that the bank received £7OOO in cash, the balance of £7(J,000 to be paid by Transport Board debentures arranged on the table mortgage system over the period extending to December 1, 1959, interest being calculated at 4J per cent. Further, as the existing loan was at 51 per cent, the hank was entitled to a premium of £1599, which was to be paid in cash. Tho payment of the £7OOO could be provided by tho sinking fund commissioners handing over the accrued sinking funds amounting to approximately £6BOO, and the board providing the balance out of its general funds. It was proposed that tho amount of the premium £1599 should be paid out of unexpended loan moneys in hand, if the sanction of the Loans Board could -bo obtained. Saving of £17,000 In reply to a member, Mr. Allum said the saving to the board as a result of the proposals would bo approximately £17,000 over a period of 26 years. Mr. E. H. Potter said that if another scbemo which would result in a greater saving were piesented to the board advantage should be taken of it. There were somo good schemes in connection with loan conversions.

Mr. W. H. Nagle said tho board was breaking new ground. Ho favoured periodical cancellation. , Mr. H. G. R. Mnson, M.P., expressed the opinion that the scheme was a Rreat advance on tho sinking fund system. "With this scheme we know where wo are and wo eliminate uneconomic enterpriso and waste," he said.

The proposals submitted by the chairman were seconded by Mr. G. Grey Campbell and unanimously adopted. Tho board also approved of a draft bill for submission to Parliament to enable the board to convert loans raised by the Auckland City Council, for whioli tho board was liable. At the suggestion of Mr. R. G. Clark it was decided to acquaint the Auckland Elec-tric-Power Board, tho Auckland Drainage Board and One Tree Hill Borough Council Qf intended conversion of loans legislation and to invito their co-opera-tion.