AUCKLAND LOAN

Otago Daily Times, Issue 21996, 4 July 1933, Page 9

AUCKLAND LOAN

PAYMENT OF INTEREST IN NEW ZEALAND CURRENCY LONDON HOLDERS RESENTFUL 'v (United Pres* Association.) (By Electric Telegraph — Copyright.) LONDON, July 2. The Daily Mail’s City editor says that the fact that Auckland was advised that there was no option but to pay in New Zealand currency should be given the widest publicity, otherwise the credit of Auckland, even of New Zealand, is Jeopardised, which is unjustified. THE BOARD’S EXPLANATION QUOTED IN LONDON PAPERS LONDON, July 3. ’ (Received July 8, at 9 p.m.) The newspapers quote fully the Auckland Tramways Board’s explanation of It* action, cabled through the Bank of New Zealand. The case ie coupled with that of the Otago Harbour Board, regarding which the board, in announcing a reduction of 20 per cent., added: “It la probable that the board will issue a renewal loan in London in the near future and confidently trusts that the effect of this legislation will not prejudice Its position in your estimation.” The Financial Times says that a ban on dealings in Aucklaryl Tramways on the Stock Exchange was continued on Saturday. . . CITY COUNCIL POWERLESS BOUND BY LEGAL DECISION EXCHANGE KATE RESPONSIBLE, (Special to Daily Times.) AUCKLAND, July 3. Out of a total tramways loan of £1,250,000 approximately £960,000 is domiciled in London, according to a itatement made by the chairman of the Auckland Transpprt Board (Mr J. A. C. Allum). On this amount £24,000 is paid out every half-year in interest. ’Mr Allum aaid that the English protests against overseas instalments of interest being paid in New Zealand currency were ineffective, because it was incumbent upon the board by law to make payments in that manner. The law in this matter was confirmed by the decision of the British Appeal Court in the Broken Hill proprietary case, and the board’s solicitor held that failure to pay in New Zealand currency would render members of ’the board and the city ■ council personally liable for the difference between the New Zealand currency and sterling. The New Zealand Audit Department upheld this view. : “It is only to he expected,” said Mr Allum, “ that financial interests in London will not vieiy the position witli favour, but that does not alter the fact that local authorities in Nesv Zealand must, comply with the law whether it favours the overseas investor or not,’ I have not heard of similar complaints being made with respect to - the Broken Hill case and I do not see why we should be singled out. As a matter of fact the wider issue has not yet been decided. The law at present stipulates that New Zealand currency must be used in making interest payments on loans raised in New Zealand, such as this tramways loan, but the Southland Electric Power Board is now applying for a declaratory judgment which, if obtained, will compel it and other local bodies to employ New Zealand currency in paying.interest on loans raised in London with optional domicile of London or New Zealand.” Mr Allum said that the New Zealand debenture holder who was paid in New Zealand currency received’£2 for a half-yearly coupon worth £2 10s, the difference representing the statutory interest reduction of 20 per cent, imposed by the Government. The New Zealand holder, however, who transferredhis debentures to London for domicile would, if he were paid in sterling, receive £3 2s 6d—£2 10s paid to him in LoiMon plus 25 per cent, exchange premium which he when the money was transferred to him in New Zealand. The New Zealander who had thus domiciled his holding in London therefore, if he were paid in sterling, could receive an advantage of 45 per cent, over the holder who had retained his debentures in the Dominion. If the hoard paid' in sterling, Mr Allum added, it would cost 12s 6d to send £2 10s to London. The Auckland City Council, which is mentioned in connection with the London protests against the loan service being made in New Zealand currency, is the authority which issued the debentures for the £1,250,000 loan, which was raised for the purchase of the tramway aystem. When the Transport Board took over the tramway undertaking the debentures were retained by the City Council, which makes the interest payment by coupon, being indemnified by the Transport Board. Commenting on the position the Mayor (Mr G. W. Hutchison! said that after the judgment in the Broken Hill Proprietary case was made known the Transport Board notified the City Council that it had been advised that in view of the judgment future payments of interest would °be required to be made in New Zealand currency.' The City Council immediately referred the matter to the city solicitor, who reported that as long as the Transport Board indemnified the City Council against any loss or action that might ensue, the council had no power to object to the method of payment which the board proposed to •dopt. nll ,- “It is unfortunate,” said Mr Hutchi- ' ton, “ that the original debentures remain in the name of the City Council although the liability was taken over by the Transport Board when the tramway undertaking was transferred from the council to the hoard. What has happened is a direct result of the raising* of the exchange by the Government, a result that was apparently not foreseen by the advisers of the Government when the increase in the exchange rate was decided upon. At the time the increase was made I personally appealed to the Prime Minister to grant exemption from the increase to local bodies in regard to their overseas indebtedness, but the request was declined. So far as the City Council is concerned it will be seen from what I have said that it is powerless in the matter. In my opinion the whole responsibility must be accepted by the Government, which should grant an indemnity to enable the amount to be paid in sterling pending the final legal decision in the matter.