LOCAL BODY LOANS

New Zealand Herald, Volume LXXI, Issue 21939, 24 October 1934, Page 13

LOCAL BODY LOANS

CONVERSION AMENDMENTS DOMICILE OF SECURITIES RESTRICTION OF OPTION [BY TELEGRAPH —SPECIAL REPORTER] WELLINGTON, Tuesday A variety of matters which have arisen in the process of the conversion of local body loans are dealt with in the Local Authorities Interest Reduction and Loans Conversion Amendment Bill introduced to the House of Representatives by Governor-General's Message late to-night and read a first time. An important clause withdraws the option as to domicile of dissented securities. It has been found that in several cases where securities being dealt with under conversion contain an option in favour of the holder to receive payment either within or outside New Zealand, such holder has elected to dissent from conversion. Although this involved a reduction of 33 1-3 per cent on the nominal amount of interest payable under such securities, it had still been advantageous to the holder, who, by sending the securities to London and collecting interest there, has been placed in a better position than if ho agreed to convert. Check on Trafficking Such holder would also on the maturity date of the dissented securities have received his principal moneys in London and would have obtained the benefit of the exchange in remitting the proceeds back to New Zealand. The clause is designed to stop that practice and will also help to reduce trafficking in these optional domicile securities for the purpose of avoiding the exchange position. It is considered that where any holder has already dissented from conversion, knowing that he could obtain payment in London, he should be given a fresh period in which to reconsider the matter and provision for that is made. Another clause on similar lines deals with securities which are not subject to conversion because the rate of interest does not exceed 4J per cent. It is claimed that trafficking in these securities is being indulged in to avoid exchange. As the option originally given in favour of the holder was never intended to be abused in that way, it is proposed to withdraw the option insofar as all securities which are held in New Zealand at the time of the passing of the bill are concerned. Advice has been received that the London authorities will raise no objection. Extension of Period Several lotpl authorities in handling their conversion schemes have been faced with the position that certain holders of securities which were not convertible desired to have their securities included in the main conversion loan, but under existing legislation it was not possible to give effect to such requests. To meet such holders an appropriate clause has been inserted in the bill. Under the original conversion Act it was provided that no order-in-coun-cil authorising conversion could be passed after March 31, 1935. At the time it was impossible to visualise what period would be necessary to deal with the conversion schemes. Although the bulk of the debt which is convertible has already been dealt with—■ approximately £32,000,000 out of a convertible debt of £45,000,000 —there are still many local bodies which have not been able to complete their conversion schemes. The Government considers it desirable, therefore, to provide for an extension of nine months in the period at present fixed for the completion of convention schemes. A clause extends the definition of local authority to include harbour boards. The original legislation was stated to be restrictive in its operation iu that it did not apply in the case of harbour boards. At least one case had arisen where a harbour board had agreed with its lender to convert part of its overseas loan, but under the existing legislation, it was not possible to gfve effect to these proposals.

REDUCTION IN INTEREST UNEXERCISED AUTHORITIES LOANS SANCTIONED THIS YEAR [BY. TELEGRAPH —SPECIAL REPORTER] WELLINGTON, Tuesday The rate of interest on all unexercised local body borrowing authorities issued after January 1 this year is to be reduced to 3J per cent by a clause in the Local Authorities Bill introduced in the House of Representatives tonight. In respect of authorities in existence before that date is is provided that such authorities shall not be exercised without obtaining a further Order-in-Council. This legislation is regarded as necessary to control the rate of interest on local body loans.