COLONIAL STOCKS

New Zealand Times, Volume LI, Issue 12007, 9 December 1924, Page 11

COLONIAL STOCKS

N.Z. COVT. LOANS AN ENGLISH CRITICISM AND & NEW ZEALAND REPLY. SIR HAROLD BEAUCHAMP’S VIEWS. The following article has been forwarded to the Auckland “Star’' by its special correspondent in London:“ILLUSORY SAFEGUARD” * 3 OP COLONIAL TRUST ACT. LONDON, October 23. I noted not long ago the fact that New Zealand Government loans are be* ing held up here as models of what such prospectuses ought to be in the amount of information afforded as to the security at the back of these loans. The subject still engrosses attention, and the laxity of other Dominions in thi6 respect hai been animadverted upon. It is not sufih cient, financial experts say here, to relj on the fact that the standing resources of a borrowing state or public authority should be publicly known. The fact! should be set forth and the omission ot these facts has tended of late to i crease. It is contrary, says one critic, to th« beet interests of borrower as well af lender that prospectuses should omit all information as to the finances of thf former. It is very unbusinesslike. Th< first thing that a banker asks of a would* be borrower is a copy of his balance* sheet, and if a loan is granted without that information, the banker takes an unbusinesslike Tisk and sometimes maket a bad debt. - TRUSTEE STOCKS. Most investors base their reliance on the fact that important colonial issue! are made'trustee stocks, find that such listing of a stock is* a guarantee by thtf English Government of the soundnesi of their backing. The conditions, com* Elian ce with which enables any issue to e placed on the list of trustee stocks, provide that the borrower shall satisfy the Imperial Treasury on certain points with information on the position of th« ' borrower. This pre-supposes the exist* ence of a guarantee. But such is not the case. The conditions merely provide that a colony shall ensure the payment out of its revenues of any sums which may become payable to stockholder! unaer a legal decision in the • United Kngdom; further that a colony shall satisfy the Treasury that adequate fundi as- and when required, will be madi available in this country to meet any such legal decision; and, further, that the colonial Government shall place of record a formal expression of theai opinion that any legislation which an pears to the Imperial Government if alter any of the provisions affecting thf stock to the injury of the stockholder, to involve a departure from the origfi nal contract in regard to the stock; would properly be disallowed-. Even as surfing that the Treasury enforced I strict - Observance of these condition!! tfr£t ‘Wotfld not carry the 6! the investor very far. "NO LEGAL OBLIGATION* It is further pointed out that there ii no' provision that a colonial borxowei whose stock is made available for trus> tees shall always balance his budget, 01 shall refrain from creating debt toe quickly, or shall institute an adequate sinking fund. Although trustees an authorised to invest in colonial stocki by Act of Parliament, Parliament hai assumed no legal obligation to trustee* in respect of their investments. There Yore it is no defence, in the case ot an omission to give adequate information, to say that the stock is a trustee invest ment. It happens that the demand trustee investments is always very coni siderable, and that trustees nave a greal faith in securities which by Act of Parf liament are declared suitable for trusts; In these circumstances it .seems very de sirable that colonial prospectuses shouM contain £h©t tame information as to th« oft the borrower as it required fxty; Act-Of Parliament in the cam of all company.vborrowers N . Investors nowadays look carefully when investing, and it is all to the good that New Zealand has voluntarily done the right thing. Investors will prefer on* Dominion stock to those of le6S careful Dominions.

BIR HAROLD BEAUCHAMP

EXPLAINS THE POSITION. .Sir Haro hi Beauchamp (director oftbs B«uik of New Zealand), interviewed by , ■ • Times’' representative, with regard Jttf' the above,'said—“lt has r.ever been paw!*'Bested, of recent years, that The Imperial'.) Government should suarantee any of onr loans. There is no doubt that in-placing our New Zealand loans on the market we give investors the advantage of gaining a large amount of information in regard to • this Domioion—its indebtedness, its resources, and the amount of money that has been raised and expended from time to time on productive works- We ran. show, of coarse, that a large proportion ' of the money raised by this Dominion has been spent on reproductive investments—notably railways, post and talp., graphs, advances to settlers, and the purchase of'land on behalf of soldiers, all of which are-introst bearing; and these loans!' of course, afford excellent security to tbf English investors. GUARANTEE SUGGESTED. "Some years ago, when the Dominion's Royal Commission was in Wellington. I read a paper in. which I urged that, for what might be described as loans for national purposee, in which the various oversea Dominions might be interested, the Imperial Government should give its guarantee. That was, however, at a time, when there was a very wide disparity between the rate of interest yeid by the Imperial Government on its vari,ous emissions; as compared with rates on the issues of- the oversea Dominions. There has been a great alteration since then, chiefly owing to the increased wealth of these oversea Dominions, with the result that it has occasionally happened within recent times that this Dominion has raised its loans in London on quite as favourable terms as those gained by the Imperial Government. Indeed, on one occasion. I remember seeing our stocks quoted at a slightly higher rate on the London market than those of the Home Government. This looks, certainly. as if we have got out of leading strings;and the suggestion I made before the Dominions Royal Commission would not have the same force to-day as it had then. PROCEDURE WITH LOANS "I may say that all loan prospectuses are submitted to a committee of the Stock Exchange in London before the loans are placed on the market; but, except in war time, it is not necessary to get the consent of the Imperial Treasury before any issue is made. And, certainly, 1 am quite unaware of any attempt having been marie in recent times to obtain the guarantee, either expressed or implied of the-. Imperial Government. The mere'listing-of any stock as trustee stock, therefore, does not carry with it any guarantee by-th,e Imperial Government, as readers might infer from the above article."