LOCAL BODY LOANS

New Zealand Herald, Volume LXXI, Issue 21396, 20 October 1934, Page 19

LOCAL BODY LOANS

CONVERSION PROVISIONS EARLIER REDEMPTION EXPLANATION BY MINISTER [BY TELEGRAPH— SPECIAL REPORTER] WELLINGTON, Friday Recent statements appearing in the newspapers regarding conversion, under the Local Authorities Interest Reduction and Loans Conversion Act, of loans raised by local bodies were referred to in an interview to-da.v by the Minister of Finance, Mr. Coates. "I am referring particularly," said Mr. Coates, "to references which have been made to the authority given to certain local bodies to redeem their conversion debentures prior to the final maturity date. Much of the criticism has conveyed quite a wrong impression and has led to a belief that local authorities have been forced to make provision in their conversion schemes for the early redemption of new securities. This is very far from being the true statement of the position Options In Some Oases "It is correct, however, that some local bodies have applied for and have been given the option to redeem their new securities prior to the final maturity date on giving reasonable notice to their debenture-holders of their intention so to do.

Some of the objections made to these options to redeem give one the impression," said Mr. Coates, "that the options are applicable to a large portion, if not the whole, of the local body debt, and that they take effect generally from 1940 to 1945. In neither respect is this correct. In the first place, approval has been given to the conversion of local body debentures to a value of approximately £32,500,000, but options to repay conversion securities prior to the new maturity dates have been included only in a relatively small proportion of the conversion schemes den It with. Actually, options are included only in 28 cases," involving £ll 000°00()'" Va ' UG a P' )rox i m 'itelv

Mr. Coates added that even these figures hardly showed the position in a true light, for the reason that by tho time the various options become exercisable, a large portion of the debt concerned will have been repaid, as tho local body conversions have taken tht* form of repayment of conversion loans progressively from year to year. A Progressive Operation

"Investors will be able to visualise the position better if I say that the options are exercisable in respect of debt to the value of slightly more than £8,000,000, and these options do not all come into force at one time. They operate progressively from 1939, when less than £40,000 is affected, until 1957. "I do cot wish to quote detailed figures, but the foregoing will show" conclusively that there is no cause for any feeling of alarm. It has even been suggested in some of the references in the press and in correspondence received by the Loans Board that general power lias been given to enable all lpcal authorities to repay their conversion debentures any time after 1940. I can assure investors that no such power has been given, nor is there any intention to give such power. "As to cases in which authority has been given to local bodies to redeem prior to the final maturity dates, this provision i$ by no means a new one. It is common to numerous loans raised on tho London market by the New Zealand Government, and by the Commonwealth of Australia. Options are extensively used by other borrowing authorities in London, and, indeed, have also been used in respect of New Zealand local body loans raised, not only in London, but also in the Dominion. Alarm Unwarranted

fit is a sound provision from tho point of view of public finance, but the impression has undoubtedly been created, possibly without knowledge of the true facts of the case* that an option has been given to all local authorities which have undertaken conversion under the recent legislation. It is unfortunate that a feeling of alarm has thus been engendered, but it is entirely unwarranted in the circumstances, and I trust that there will be no adverse effect on the marketability body securities generally. "The Government is fully alive to th© desirability, in fact, to the necessity," said Mr. Coates, "of doing everything possible to preserve the credit of the local authorities of New Zealand in the eyes of the investing public, and it is with this end in view that_ I feel it necessary to make a public announcement to clarify tho whole position."