SATURDAY, MARCH 21, 1896.

Otago Daily Times, Issue 10625, 21 March 1896, Page 4

SATURDAY, MARCH 21, 1896.

Despite the formidable and complicated table submitted to the City Council by the Finance Committee, and the memorandum read by the Mayor, tho ini'easibility of conversion of a large part of the city loans has not been demonstrated. The committee fortified itself with the opinion of its bankers, and also with competent actuarial opinion, as to the amount of premium probably necessary to induce bondholders to give tip their bonds. The bank advises that premiums ranging from 9 per cent, to 27 per cent, would be demanded, while the actuary says that the premium value ranges from about 4§ per cent, to nearly fc!4 per cent.; but this high figure1 includes long-dated debentures that it is not proposed to convert, and therefore the average premium would be materially reduced. But though the extremes thus vary, the mean rate shown by the actuary is very much lower than that of the bank. It is extremely difficult to understand why the actuary's valuation has been imported into the table by the committee at all. No figures are deduced from it. It stands isolated

m its own column, and. is apparently presented for the purpose of demonstrating' that the committee had exhausted every source of information. If such were the desire, it is to be regretted that they did not obtain the latest Stock Exchange quotations, which "would have been more satisfactory as showing actual market value than either the hazard of the banker or the formulae of the actuary. But the committee chose to accept the high valuation of the bank, and based its decision and recommendation thereon. It therefore advises the council that if conversion ■were carried out on the terms mentioned the total annual saving in interest and sinking fund would be £6146. The table presented by the committee would have been more perspicuous were it not burdened with laborious and superfluous analyses of the effect of conversion on each departmental loan separately. It is hardly fair to the public, whose interests are at stake, to cloud the general question with an unnecessary mass of details. We purposely omit details in order to test the soundness or otherwise of the general conclusion arrived at by the committee. A very simple calculation will show what the holders of each set of debentures would lose by receiving the proposed 4 per cent, interest instead of what they now receive. By taking the nine convertible loans, which amount to .£480,400, and working out the interest on each separately for the term of its currency, and comparing the present with the proposed rate of interest, we find that the total sum would be .£66,631. The bank says it ought to be .£76,290, or .£9659 more than the sum. which would be actually lost. If, then, the corporation were to approach the bondholders, as it has power to do, and offer them now both their principal and the difference in interest that would accrue during the currency of the existing debentures—providing also for the debenture-holder an investment for a longer term of years,—hardly any reasonable person would refuse; and by this operation the corporation would save =£9659 upon the bank's estimate. This calculation shows that the bank places the premium too high. By the table we have referred to it is evident that the bank's premium estimate is nearly £10,00.0 above, the 'cash value of the interest earnable to maturity of loans, but it may further be mentioned that credit ought t6 he - taken for what cash payments made in" advance would yield at 4 per .cent. At simple interest, as shown by the last column of the table, this would amount to no less a sum than .£29,023, which added to the £9659 makes the bank's estimate wrong to the extent of £38,682. We think this is suiSeient to prove that the assumption that conversion is hot feasible is 1 hasty, arid not warranted by the information so far to hand.

But the most extraordinary part of the report of the committee and of the Mayor's memorandum is the total oaiissionof any reference-to the sinking fund that would be released by conversion. THe release of the accrued sinking fund is inseparable from consideration of tlie question. Assuming, the sinking fund to be £160,000, which would suffice forJ the extinction of the overdraft arid place £110,000 in the hands of the council, it is remarkable that no one seems to have made any mention of it in dealing with the conversion scheme pure and simple. This amount, of £110,000 if invested even at 4 per cent, would yield £44Ci0 a year at simple interest; which must be credited to tlie savings made by the conversion. It is true that the Mayor in detailing what course in his opinion should guide the council did refer to the forthcoming maturity of the 1898 loan and the consequent release of £20,900 sinking fund: but what of the larger sum? Surely it cannot be ignored without ceremony. It was originally intended that the balance of sinking furtd remaining after extinguishing the overdraft should be spent on drainage, but if it we're not desired to proceed with drainage or any other extensive works it could be applied to repayment of the inconvertible debt of the city, &M So save payment of interest and sinking fund. Reverting to the conversion scheme, and to the, conflicting statements regarding, it, we may remark that the Mayor was unfortunate in selecting the operations of the late Mr Leary as an illustration of the infeasibility of conversion. Considering that mOst of the conversions effected were in the coloniesj where money is dear and myestntents plentiful, while in England the reverse is the case, it must be considered that they promised exceedingly well, and the rates at which Mr Lbary effected them will bear more than favourable comparison with the estimate of the bank. Updn the whole, then, the opponents of conversion have not oflly failed to prove their case, but have shown, we fear, a predisposition to arrive at hostile conclusions, and that without thoroughly grasping the facts. With the information before us we see no reason why the conversion scheme as originally propounded should not proceed. We are convinced it would be to the advantage of the city* and that any other proposals only mean temporising with the difficulties that surround the corporation finances.