AUSTRALIAN LOAN

Otago Daily Times, Issue 23687, 20 December 1938, Page 11

AUSTRALIAN LOAN

THE CONVERSION ISSUE COMMENT IN THE OBSERVER LONDON, Dec. 18. The Observer, commenting on the Australian conversion, says: "It cannot be "said that the result was a surprise. Indeed, it was expected that a larger amount would be left with the underwriters owing to the unfavourable conditions existing throughout the period of the offer. The anxiety caused by Socialist domination in New Zealand has had an adverse effect on Australian stocks, which are all below the level at which the 4 per cent, stock was issued." The underwriters were left with 60 per cent, of the loan. The operation relates to the conversion of £2,517,800 of South Australian 3£ per cent, inscribed stock, maturing on January 1, 1939, into Commonwealth stock. The new loan was 4 per cent, issued at par. In commenting upon the issue recently the Argus, Melbourne, stated: In having the conversion loan underwritten at an interest rate of 4 per cent., the High Commissioner, Mr S. M. Bruce, has obtained terms which are very satisfactory to Australia in view of the present condition of the market for Commonwealth securities in London. The loan matures in 1970 with the option of redemption in 1955. The nearest comparable existing loan is the 5 ner cent, issue which is redeemable in London in 1945-75. This issue is quoted at £lO2 17s 6d, which gives an effective yield of £4 9s per cent, if redeemed in 1945 and £4 16s 6d per cent, if it runs until 1975. Having been underwritten on favourable terms the loan can already be described as a success. It is immaterial whether the public subscribes fully or not, because j of the new technique which has developed in loan flotations on the London market. Loans are now taken up largely by the underwriters, who feed the securities to the market over a period instead of offering them for the market to absorb in one block. This procedure is in the interests of the borrower, for if a loan were heavily oversubscribed, it could be reasonably assumed that too high an interest rate had been offered.