THE OTAGO DAILY TIMES THURSDAY, SEPTEMBER 3, 1931. THE COMMONWEALTH LOAN.

Otago Daily Times, Issue 21430, 3 September 1931, Page 8

THE OTAGO DAILY TIMES THURSDAY, SEPTEMBER 3, 1931. THE COMMONWEALTH LOAN.

Of deep interest to the British Empire will be the satisfactory outcome of the Australian Conversion Loan plan. The problem of converting the internal debt of the Commonwealth to a 4 per cent, basis would appear to have been successfully solved. As a result the nation may reasonably congratulate itself not only upon taking the first step towards the restoration of economic equilibrium but also upon regaining in large measure the confidence and goodwill of countries which cannot fail to be impressed by the response by the investing public of Australia to a national appeal. The road to solvency which the Commonwealth has taken is by no means an easy one, but the fact that of the huge debt of £556,000,000 only about £15,000,000 remained unconverted at the end of the prescribed period represents a striking tribute to the willingness of the bondholders to contribute their share to the rehabilitation of the finance of their country. They have exhibited, more than some of their prominent politicians have done, their sense of the needs of the times. It is permissible to believe that what Australia has dared to do in this respect will prove an example for other countries in similar straits. A huge conversion loan may be expected to be included in the plans of the National Government at Home and, despite what was said yesterday by the chairman of the Dunedin Stock Exchange, it cannot be regarded as beyond the bounds of possibility that the Government in New Zealand may deem it advisable to appeal to the holders of stock in this Dominion for a voluntary conversion into bonds at a reduced rate of interest. The total sum involved in the Australian conversion plan represents the whole of the internal indebtedness of the Commonwealth and State Governments. State securities aggregate £155,533,000 and Commonwealth securities £400,467,000 of which latter sum an amount of £226,000,000 is accounted for by war debts. The total amount of interest payable on these securities was approximately £28,850,000, or an average of £5 4s per cent. It has been estimated that the conversion of the whole debt will result in an annual saving of interest of no less than £6,500,000, which represents a reduction in the charge of 224 per cent. Under the plan which was adopted by the Loan Council, 54 per cent, stock, amounting to £450,000,000, is converted into 4 per cent, stock at a premium; 5 per cent, stock, amounting to £45,000,000, into 35 per cent, stock at par, or 4 per cent, stock at a discount at the holder’s option; and securities of £61,000,000, bearing interest at less than 5 per cent., into 3 per cent, stock at a premium or 4 per cent, stock at a discount, again at the holder’s option. Where these revisions in interest rates do not exactly represent a reduction of 224 per cent, the difference is to be adjusted by increasing

or decreasing the number of the new securities. There can be no doubt that the loan conversion campaign in Australia was watched with the greatest interest overseas, and it may be conjectured that as a result of the success of the issue the credit of the Commonwealth abroad will stand considerably higher than it has been for a long time. It is a matter for congratulation that almost the whole of the stock involved has been converted at the actual request of bondholders, for the conversion may be regarded as in the light of a plebiscite of bondholders, in which the investing public of the Commonwealth affirmed its appreciation of the economic wisdom of a course that has been described by an English newspaper as a “ desperate remedy for a desperate situation.”