LOAN CONVERSION

Otago Daily Times, Issue 22398, 20 October 1934, Page 14

LOAN CONVERSION

LOCAL BODY SECURITIES STATEMENT BY MINISTER WRONG IMPRESSION REMOVED (From Our Parliamentary Reporter.) WELLINGTON, October 19. Recent statements appearing in the newspapers regarding the conversion under the Local Authorities Interest Reduction and Loans Conversion Act of loans raised by local bodies were referred to in ah interview to-day by the Minister of Finance (Mr J. G. Coates)._ “I am referring particularly,” said Mr Coates, “to references which have been made to the authority given to certain local bodies to redeem their conversion debentures prior to the final maturity date. Much of the criticism has conveyed quite a wrong impression and has led to the belief that local authorities have been forced to make provision in their conversion schemes for the early redemption of new securities. This is very far from being a true statement of the position. It is correct, however, that some local bodies have applied for and have been given an option to redeem their new securities prior to the final maturity date on giving reasonable notice to their debenture holders of their intention so to do.

“ Some of the objections made to these options to redeem give one the impression,” said Mr Coates, “ that the options are applicable to a large portion, if not the whole of the local body debt, and that they take effect generally from 1940 to 1945. In neither respect ie this correct. In the first place approval has been given to the conversion of local body debentures to the value of approximately £32,500,000, but options to repay conversion securities prior to the new maturity dates have been included only in a relatively small proportion of the conversion schemes dealt with. Actually the options are included only in 28 cases, involving debt to the value of approximately £11,000,000.” Mr Coates added that even these figures hardly showed the position in its true light, for the reason that by the time various options became exercisable a large portion of the debt concerned would have been repaid, as local body conversions had ; taken the form of the repayment of conversion loans progressively from year to year. “ Investors will Jje able to visualise the position better if I say,” said Mr Coates, “that the options are exercisable in respect of debt to the value of slightly more than £8,000,000, and these options do not all come into force at one time. They operate progressively from 1939 -when less than £40,000 is affected, until 1957. I do not wish to quote detailed figures, but the foregoing will show conclusively that there is no cause for any feeling of alarm. It has even been suggested in some of the references in the press and in correspondence received by the Loans Board that general power has been given to enable all local authorities to repay their conversion debentures at any time after 1940. I can assure investors that no such power has been given, nor is there any intentidn to give such power. “As to the cases in which authority has been given to local bodies to redeem prior to the final maturity dates, this provision is by no means a new one. It is common to numerous loans raised on the London market by the New Zealand Government and by the Commonwealth: of Australia. Options are exten-: sively used by other borrowing authorities in London, and indeed have also been used in respect of New Zealand local body loans raised not only in Loudon but also in the Dominion. It is a sound provision from the point of view of the public finance, but the impression has undoubtedly been created, possibly without knowledge of the true facts of the case, that an option has been given to all local authorities which have undertaken conversation under the recent legislation. “It is unfortunate that a feeling of alarm has thus been engendered, but it is entirely unwarranted in the circumstances, and I trust,” said the Minister, “that there will be no adverse effect on the marketability of local body securities generally. The Government is fully alive to the desirability, in fact to the necessity, of doing everything possible to preserve the credit of the local authorities of New Zealand in the eyes of the investing public, and it ia with this end in view that I feel it necessary to make a public announcement to, clarify the whole position.”